At a time when investors are getting very limited returns on cash in the bank or cash alternatives understandably money has been flowing back into the equity market.
Notably the UK market has continued to significantly outperform the stock markets of the BRIC economies. The Brazilian stock market is down over 7 per cent, Russia is down 5 per cent, India is up 3per cent, China is up 1 per cent.
Investors in the last few years have been focusing on the potential growth stories of emerging markets over developed markets rather than look at the valuations they were paying to invest in those markets.
Now the dilemma is can the UK stock market continue this performance? The economy in the UK is showing signs of strengthening and there are great hopes for the new governor of the Bank of England.
The relative valuation of equity markets on simple price to earnings measures does not look expensive relative to history and the dividend yield on the market at over 3.5 per cent still looks attractive relative to the alternatives.
Many have been debating if the FTSE 100 can continue to run up and beyond the psychologically important level of 7,000 that was nearly reached at the height of the dot com bubble way back in 1999.
However, this rise in the equity market has come hand in hand with a rise in complacency. There are still some warning signs and the markets rise has hidden a few overall negative trends.
Sectors such as mining have been notably weak as we digest the enormous capacity that was put into commodity markets during the boom years.
Performance of indices in 2013
Source: FE Analytics
At the individual share level, companies such as Aviva (the insurance company) that have cut their dividends have really suffered, falling over the course of 2013.
Recent profit warnings have been met starkly by investors. Group 4 Securicor (the security service company) and Carnival (cruise ship operator) both fell over 15 per cent and 10 per cent respectively after issuing disappointing trading statements.
When markets have risen it is worth remembering that avoiding the landmines is as important as picking the winners.
To this end we continue to focus all of our investment decisions on companies with a robust financial position backed by hard assets or those where the underlying cash flow generation is extremely strong.
We are starting to see a greater dispersion between the winners and the losers. As a firm, Miton is focused on investment trends that are becoming apparent beyond the enormous credit boom of the last 25 years.
During that credit boom stock correlation (the amount shares move in tandem to each other and the market) steadily rose meaning there was less opportunity for differentiating yourself from the overall market. There are already strong signs this is starting to reverse.
We continue to find significant opportunities in the UK stock market. However, despite lots of exciting valuations we are wary given the run that stock markets have had and the significant risks that still exist in the world economy today. As such we are very selective with our investments.
One development that really plays into the importance of stock selection, is the reduction in research at troubled investment banks and stock broking firms.
Lots of smaller companies have been left unnoticed, or have very limited research written about them. The opportunity for finding real gems and stock market bargains is all the more pronounced as a result lower down the market capitalisation scale.
Stock selection and a laser like focus on valuation and the true financing positions of companies rather than a simple exposure to an index overall will, we believe, stand investors in good stead over the remainder of 2013 and beyond.
CF Miton UK Value Opportunities was launched in March 2013, and Godber co-manages the fund with Georgina Hamilton.
Performance of fund versus sector since March 2013
Source: FE Analytics
Data from FE Analytics shows it has made 1.56 per cent since launch as the average fund in the IMA UK All Companies sector has made 4.55 per cent.