Big names such as Royal London's Martin Cholwill, Threadneedle’s Richard Colwell, Schroders' Matt Hudson, Henderson’s James Henderson (pictured) and Unicorn's Simon Moon and Fraser Mackersie came together for the FE Select 100 UK Equity Income even to present their views on the market.We heard how Colwell has been buying into beleaguered supermarket Morrisons in expectation that it will bounce back from its dreary performance while Henderson was critical of the IMA UK Equity Income sector’s yield constraints.
During the week, Ardevora’s Jeremy Lang also revealed to FE Trustnet his rules for investing.
We’ll leave you with these to think over.We all hope you have a great weekend.
James Henderson: I’d have given up my fund if I had to stay in the Equity Income sector
FE Alpha Manager Henderson said he would rather have given up management of his Henderson UK Equity Income & Growth fund than be forced to change his approach just to meet the sector’s requirement to achieve a yield 10 per cent more than the FTSE All Share.
The manager, whose fund moved into the IMA All Companies sector last year, warned that the yield constraints are pushing equity income managers into value traps and pointed out that only 70 companies in the FTSE 350 yield above 3.5 per cent, meaning investors are being forced into the same holdings.
“The idea is to grow the capital with an income discipline, that’s when you get genuine income. The philosophy is if you bleed the capital and take it as income, you end up with less capital and less income over time,” he said.
“You’ve really got to grow the capital; you should never buy something that just has a high yield because you are just going down a cul-de-sac. Too many people are being corralled into too few big companies that aren’t really growing.”
Jeremy Lang: How to make money like me
Ardevora UK Income fund manager Jeremy Lang tries to take a different approach to equity investing than many of his peers and told FE Trustnet about three strategies that help him identify opportunities.
Firstly, Lang looks for management teams that are being forced to take less risk than they usually would, as this makes it more likely they will act in a “sensible way”.
This avoids the normal pitfalls that management teams, which he believes are “peculiarly egotistical”, fall into through over-confidence.
The manager is also keen on stocks that analysts appear to be biased against without good reason.
He cited Next as a good example because analysts are downbeat on retailers in general but the clothing chain keeps surprising them on the upside.
Finally, Lang sees opportunities when other investors don’t like a sector and said the IPO of TSB was attractive as it offered access to a new retail bank with a strong client network, a low-risk mortgage book and healthy distribution channels.
Stocks to avoid: The FTSE companies in “terminal decline”
UK equities have had a tough few days after concerns over geo-political tension in the Middle East weighed on risk assets, but FE Trustnet reporter Daniel Lanyon started the week off by finding out which FTSE stocks managers are avoiding like the plague.
Henderson’s James Henderson revealed why he isn’t confident about the outlook for Marks & Spencer while FE Alpha Manager Rosemary Banyard of the Schroder UK Mid Cap and Schroder UK Smaller Companies funds said Thomas Cook is at risk of “cost cutting itself into decline”.
Neil Hermon, manager of the £500m Henderson UK Smaller Companies Investment Trust, added that he thinks controversial AIM-listed Quindell could be “bust” by the end of the year and said he wouldn’t invest in the company if you paid him.
This market is based on hope and nothing else, says Bruce Stout
Star manager Bruce Stout, who runs the Murray International Trust, kept up the cheery tone by arguing that financial markets are being supported by nothing but hope following years of central bank intervention.
Although equities’ gains have started to slow across 2014 so far, the manager is sticking with a defensive portfolio because he believes there is still too much complacency among investors, which could end badly.
“The relentless appreciation of equity markets continues to be based on hope and expectation rather than fundamental improvements in corporate profits or underlying dividend growth,” Stout said.
“Against such a backdrop, great care must be taken to avoid potentially destructive over-valuations; hence the continued primary focus of portfolio management remains on capital preservation.”
A more flexible alternative to Angus Tulloch and First State?
Somerset Capital Management could be a strong rival to First State, according to fund of funds manager Gary Potter, who says the two are leaders when it comes to bottom-up analysis in emerging markets.
“The quality of analysis in company terms is very high indeed. I’m not saying other groups aren’t good at what they do, but the way the Somerset managers work reminds me very much of Angus Tulloch,” he said.
“The focus for both is on quality companies, using qualitative analysis. They look at things like cash flow, depth to equity, intellectual property and so on. The attention to detail reminds me very much of the early days of Angus.”
Potter, co-head of F&C’s multimanager range, should know what he’s talking about - as he was one of the very first investors in FE Alpha Manager Tulloch back in 1990.
