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Sell-off has created “lots of exciting opportunities”, says Premier’s Robbins

11 September 2015

The global manager says the recent rout in equity markets should be viewed as a positive by investors as nothing has fundamentally changed within the global economy but valuations are now much cheaper.

By Alex Paget,

News Editor, FE Trustnet

The recent sell-off in global equity markets has produced a whole host of “exciting opportunities” for investors, according to Premier’s Jake Robbins, who says the recent rout was a healthy correction after a bull run that had become increasingly stale.

Global equities have taken a tumble over the past few months as macroeconomic fears – which had been based around issues such as uncertainty surrounding Greece, falling commodity prices and the prospect of tighter monetary policy in the US – finally came to head following weaker than expected data out of China and the country’s authorities’ decision to devalue the currency. 

According to FE Analytics, the MSCI AC World index is down more than 13 per cent since its peak in April. It has witnessed a recovery of sorts over recent weeks (it had lost more than 17 per cent after the events of ‘Black Monday’) but this has come with a large dose of volatility.

Performance of index in 2015

 

Source: FE Analytics 

Given the rally in risk assets has, up until recently, been running for the past six or so years and huge price swings within markets have become the norm, many warn that the recent sell-off is a precursor to a more sinister event for investors.

But not everyone. Robbins, manager of the £90m Premier Global Alpha Growth fund, says the recent correction is nothing to be worried about as it was necessary following the stellar returns since the global financial crisis.

“Various commentators have blamed the recent sell-off on China, but China slowing isn’t new news. The only thing that is new is its falling stock market, but fundamentally nothing has changed,” Robbins (pictured) said.

“There are other concerns such as whether the Fed will raise interest rates, but for me there wasn’t one specific factor behind it.”

“In reality, we have seen an extraordinarily long bull market which has been supported by central banks while, at the same time, global growth isn’t that strong. In my opinion, this was an overdue and healthy correction.”

FE data shows just how well markets have performed since they bottomed after the global financial crisis. The S&P 500, for example, has posted a positive return in every year since and as a whole gained 216 per cent up until the recent sell-off.

Performance of indices between the global financial crisis and 2015 sell-off

 

Source: FE Analytics

Now that markets have taken a fall, Robbins says it is the time to be positive again.


 

“While there were plenty of great companies that were deserving of their elevated P/Es, there were many others that which were on multiples which weren’t justifiable. However, there has been this period of risk-off and it has turned into a ‘sell everything’ type of correction.”

He added: “I think that has created lots of exciting opportunities within markets.”

Of course, there are many who have an opposite view to Robbins.

There are many who hold the opinion that equity markets have been inflated due to huge amounts of stimulus provided by the world’s central banks and therefore the high volatility in markets is a precursor to a further more serious fall.

Many have therefore likened the current environment to the uncertain times before the last financial crisis.

“Movements of the like we have seen are reminiscent of 2008, and the intra days moves have been rather aggressive. These seismic movements do not occur very often, yet I fear due to the extent of QE inflating the market(s) beyond reasonable size, this is now par for the course. It has added another dimension to investing in the markets,” Coram’s James Sullivan warned last month.

Performance of indices during the global financial crisis

 

Source: FE Analytics

One possible source of further volatility is the potential for tighter monetary policy in the US.

Earlier in the year, many expected the US Federal Reserve to raise rates in September given close to near full employment and improving wage growth. Some now believe, given the events over recent weeks, the Fed will delay any hike in interest rates.

Robbins says that though it could cause nervousness in markets, the central bank should take the leap of faith.

“As far as I’m concerned, interest rates should go up now. We are very close to what the Fed perceives as full employment and wage growth is returning. The economy is certainly strong enough to withstand a small 0.25 per cent hike and we need to get away from these crisis-level interest rates because it isn’t healthy,” Robbins said.

One of the other major fears surrounding equity markets, though, is that the recent falls will create uncertainty in the underlying economy as well.

Seneca’s Peter Elston highlighted this view in a recent FE Trustnet article.

“The global economy is a complex system which can often behave non-linearly,” Elston said.

“Although there will be positive feedback loops that cause household and business confidence to be impacted by the recent equity market falls, there are also negative feedback loops that can cause equity markets to bounce back. Examples of this would be government or central bank stimulus measures or people buying because prices are cheaper.”

He added: “In summary, it is impossible to say with certainty that we are not about to enter a bear market but from a business cycle and valuation perspective, economies and markets are to varying degrees some way from the point at which bear markets generally begin.”


 

Robbins agrees with Elston’s view but says that investors may need to forget about making 12 per cent per year from equities, as has been the case on average over the past six years.

“I’d be very surprised if there is a severe economic downturn because of the sell-off as, outside of China, nothing has really changed fundamentally,” Robbins said.

“The bull market had got stale and valuations were too high. However, I do think you need to be more selective than you have been. It’s been very easy to make money from equities since 2009 but that is starting to change.”

“Still, though, I think you are able to make money from equities as the fundamentals are solid.”

Robbins has managed the Premier Global Alpha Growth fund since November 2011 over which time it has been a top quartile performer in the IA Global sector and has beaten the MSCI AC World index by close to 20 percentage points with returns of 62.31 per cent.

Performance of fund versus sector and index under Robbins

 

Source: FE Analytics

That outperformance has largely come over recent years, with the fund delivering top decile returns in 2014 and posting a gain of 4 per cent so far this year while the sector and index have fallen around 3 per cent.

Robbins attributes that outperformance to the areas he doesn’t own, such as emerging markets and commodity related companies. He is, however, bullish on areas such as US financials, Europe and Japan.

Premier Global Alpha Growth has a clean ongoing charges figure (OCF) of 1.14 per cent. 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.