Since the financial crisis, a huge majority of the corporate sector has gone on a large-scale process of deleveraging in order to protect against further crises and garner favour among more risk-averse investors.The muted global economic recovery has fuelled companies’ unwillingness to do away with their cash-heavy balance sheets via capex or M&A activity.
McQuaker, who is head of multi-manager at Henderson, says that although stimulus from the world’s central banks has helped the recovery so far, sustainably increasing economic data can only come through when companies begin to spend.
"From a market perspective, it may cause a challenge, but from the perspective of ending the post-financial crisis it could be vital," McQuaker explained.
"The most important people now are the ones that are running companies. I don’t think central bankers have a lot of fire power left in the tank to drive a recovery. However, where there is this financial firepower is in the corporate sector."
"They have got a lot of cash on their balance sheets, but are they ever going to find enough positives to spend it?"
"The classic case is in Europe, where company management teams are running equipment into the ground instead of having to spend. They have decided to build up cash over new kit, but at some point the pressure to spend becomes overriding as they will lose their competitive advantage."
However, the manager says that could take some time. In the meantime, he says the politicians must create some sort of policy that will incentivise company management teams to spend the money on their balance sheets.
McQuaker has been managing funds in the IMA universe since the summer of 2005. As head of multi manager, he oversees both the Core Income and Multi Manager ranges at Henderson Global Investors.
One of his best relative performers has been the £216m Henderson Multi Manager Distribution fund.
According to FE Analytics, it is a top-quartile performer in the IMA Mixed Investment 20%-60% Shares sector over five years, with returns of 43.68 per cent, beating the average fund by around 15 percentage points.
Performance of fund vs sector over 5yrs
Source: FE Analytics
It is a fund of funds that holds highly rated portfolios such as M&G Global Dividend, Kames High Yield Bond and Jupiter Strategic Bond as top-10 holdings. The fund also holds inhouse products, such as the Henderson Strategic Bond fund.
Henderson Multi Manager Distribution is yielding 2.7 per cent, has an ongoing charges figure (OCF) of 2.29 per cent and requires a minimum investment of £1,000.
From a market perspective, McQuaker expects choppy conditions over the next few months. He says this is inevitable as liquidity stops becoming the main driver of market confidence.
"Since the Draghi speech in summer 2012 through to May 2013, if you wanted to make money from equities, you basically just had to buy something," he said.
"Everything went up; European risks had been largely removed and we saw an enormous amount of central bank liquidity, with both the US and Japan coming online with QE."
"The reason I used May is because it was then that the phase of very liquidity-driven markets began to slow. What brought it about was the so-called tapering or reducing of stimulus. Markets have to get used to less liquidity."
"But there has to be a hand-off from a liquidity-driven market to a growth-driven one."
"We have seen this sort of thing before, where markets are a bit choppy there might seem like there is nothing to worry about, but then there is a sell-off. Basically, markets move sideways for a period of time."
"I think those conditions will take us through to somewhere in the fourth quarter, but hopefully at that stage we will see better economic data, which will trend upward going through into Christmas," he added.
McQuaker highlights Europe as one of the areas that still has the power to shock markets and he expects this to be the case for some time to come.
"To date, Europe has been improving," he said. "The question is, is there going to be enough growth to be able to say that the eurozone crisis has gone away and that we can draw a line underneath the issue?"
"We are not yet in that camp."
"The only way that we can see the end of the eurozone crisis is if there is enough growth in the periphery to drive down youth unemployment. Until that happens, there will be a lot of political pressure," he added.
McQuaker is concerned that if the high levels of youth unemployment in the likes of Greece and Spain are not addressed, it could cause an emergence of more radical political parties in those countries, which may either try to re-negotiate their membership to the eurozone or just pull out all together.
He says that if that were to happen, "it would really put a cat among the pigeons".
