“Death of equities” argument greatly exaggerated
The Premier manager has experienced similar levels of pessimism in the past and says it is usually a sign to buy in.
Investors who are piling into the bond market are chasing yesterday’s returns, according to Premier’s Simon King
, who thinks the "death of equities" argument has been overhyped.
"When the FT runs an article saying the age of equities is over, that’s when I start to think we might have hit the bottom, as it is usually a good reverse indicator," he said.
"I see equities as a no-brainer on a 10-year view but admittedly, the next two-to-three years worry me."
IMA figures released today show the fixed interest and multi-asset investment classes continue to be the most popular among retail investors.
Simon Weldon, director of marketing at Premier, said: “I do not know any investment specialists saying you should be in fixed income investments now. People always look at performance last year and try to repeat it.”
King also warns against over-diversification in an equity fund, as he believes as few as 10 stocks provide an adequate spread of risk. This is a view championed by Warren Buffet, who once said: "If you really know businesses, you shouldn’t really hold more than six of them. Very few people get rich on their seventh-best idea, but lots do off their best idea."
King runs the Premier UK Strategic Growth
, Premier UK Alpha Growth
and Premier UK Mid 250
All funds are run along the same investment strategy, with the main difference between the Strategic and Alpha funds being the concentration of the holdings.
Premier UK Alpha Growth holds between 20 and 40 companies and Premier UK Strategic Growth holds up to 50.
Premier UK Strategic Growth has been hit hard by the weakness in markets early this year.
After falls in the last month the fund is now up 5.13 per cent since King took over in early 2010, while its FTSE All Share benchmark is up 6.6 per cent.
Performance of fund vs sector and benchmark over 2-yrs
Source: FE Analytics
The manager says that the poor state of the UK economy is putting investors off equities as a class, but this means they are missing out on companies that are stronger now than they have ever been in his 16 years in the industry.
However, he is avoiding retailers and house buyers as he thinks the UK consumer is still struggling to keep up with inflation.
Like Charlemagne’s Julian Mayo, who spoke to FE Trustnet on the theme last week
, King expects living standards in the developed world to remain flat or fall in the coming years.
However, he says that the UK has lots of companies that have profit streams from abroad and that provide plenty of opportunities for investors.
"I would say in a difficult investment climate you have to take risk to get reward. I think you get the best returns when you are contrarian," he continued.
"Although you need to be brave to be in equities in the current environment, the risks are more from investor psychology than fundamentals."
"You have to be doubly sure about the companies. If you get something wrong the market is savage. A 10 per cent profit warning could lead to a 40 to 50 per cent share price fall on the day – although the equity could later recover some of that."
"The market used to have expectations that good companies would get good returns every quarter but it is going to be very difficult even for the best companies to produce quarter-on-quarter growth," he finished.