Veitch: FTSE to double in 10 years
The SVM manager says the uncertainty caused by the eurozone crisis is likely to be a short-term development and is distracting investors from the attractive valuations to be found in equities.
By Mark Smith, Reporter, FE Trustnet
Tuesday May 29, 2012
The FTSE will double in value over the next 10 years, says SVM’s Neil Veitch
, who has been adding risk to his portfolio in recent weeks despite the extreme volatility.
The manager of the SVM UK Opportunities
fund acknowledges that there are threats to the market, particularly with the escalation of the eurozone crisis. However, he thinks that equities are still the most attractive asset class on historical valuations.
"With regard to the issues facing the market and without trying to sound too glib, it was always thus," he said. "Most stock market adages have an element of truth in them and one classic is that bull markets always climb a wall of worry."
"When we look back there’s always something to worry about and that’s not to dismiss that the backdrop of today is fairly complex and challenging. There are issues ranging from the real underlying strength of China to the strength of the recovery in the US and that is all overlaid with a healthy dose of concern about what is happening in the eurozone."
He added: "In general the focus has been on moving the fund away from defensive areas to more aggressive situations such as cyclicals, particularly in the mid cap section of the market."
The exposure to riskier sectors has worked out well for the SVM UK Opportunities fund. Data from FE Analytics
shows it has returned 63.40 per cent compared with 37.31 per cent from the average fund in IMA UK All Companies. That performance puts the fund comfortably in the top decile.
Performance of fund vs sector over 3-yrs
Source: FE Analytics
However, the re-emergence of eurozone-related volatility has had a negative impact on returns over the last 12 months. Our data shows that the fund is bottom-quartile over one year.
"Growth is likely to remain subdued in the western economies but in the broader picture that should enable the global economy to continue to grow at 3 per cent, driven by growth in emerging markets," Veitch continued.
"We still feel the US will grow somewhere in the region of 1.5 to 2 per cent."
"Most importantly, if the global economy continues to grow at 3 per cent per annum then corporate profitability should broadly follow that trend."
"With valuations reasonable to begin with I don’t think it’s unrealistic to assume that the market could be double the level it is at now in 10 years' time. Investors shouldn’t lose sight of the fact that equities are the most attractive asset class out there."
The manager is also finding value in unpopular areas that have been hit heavily by the recession.
Click the video link on the first page to see the full interview with Veitch on this subject.
"We like WPP, the global media company. We feel that the market has been too quick to treat media as one broad-brush entity. Some traditional media entities, most notably newspapers, are going to struggle in a world that is increasingly dominated by the internet and the disintermediation that causes."
"Other parts will benefit from a slower growing economy. If growth is going to be subdued then big multinationals will need to invest more in their brand and that means spending more on advertising."
Equally Veitch says that financial stocks cannot all be tarred with the same brush.
"We try to differentiate between those that are financially strong and those that are less so, those that are national champions and those that are not. There will be a continued move to support financials that represent national champions such as BNP Paribas in France, Deutsche Bank in Germany and HSBC in the UK. The second-tier banks are more difficult."
The SVM UK Opportunities fund has around 5 per cent of its assets invested in traditional defensive sectors such as healthcare and utilities.
"It is good prudent portfolio management to ensure the portfolios are diversified along eight broad economic exposures to give a much more attractive risk and return profile," Veitch finished.