Thanks to a resolution (or a coup, depending on who you speak to) between Athens and its creditors over the weekend in the form of a bailout package for stricter austerity, market attention has once again turned to the future of monetary policy.
Federal Reserve chief Janet Yellen gave her strongest indication yet that she was looking to raise interest rates in 2015 as numbers from a written statement to the US House of Representatives’ Financial Services Committee yesterday suggested near full employment.
Bank of England governor Mark Carney has also been in on the act, telling an audience at Lincoln Cathedral that the decision as to when to initiate “a process of adjustment” in terms of UK rates “will likely come into sharper relief around the turn of this year”.
Despite these potential risks, markets in the US, Japan, Europe and the UK have all made gains this week.
These macro talking points, interviews with top quality managers and our access to a shedload of data mean we at FE Trustnet have had a busy but fruitful week. Here we highlight a selection of our favourite stories which we hope you enjoyed too.
Once again, from all of us on the editorial team, have a cracking weekend.
Woodford’s “frustration and disappointment” with the 2015 Budget
To start us off, Neil Woodford revealed his “disappointment” with the 2015 Budget after the move to scrap the climate change levy exemption for renewable energy producers led to a crash in one of his holdings.
Drax Group, which operates the Drax power station in North Yorkshire, is the 22nd largest holding of the CF Woodford Equity Income fund. This is the largest coal-fired power station in western Europe but is in the process of being converted to burn wood pellets.
News that Drax would lose its exemption from the levy, which was estimated to lead to savings of £450m in the current financial year and £900m by 2020, caused its shares to drop 28 per cent on the day of the Budget. Woodford said the chancellor’s move was “immensely disappointing and frustrating” to Drax shareholders, but adds that the wider implications of the move are “even more disturbing”.
Performance of stock vs index over 1 month
Source: FE Analytics
“Government should be working in partnership with the private sector and the investment community to deliver positive long-term outcomes for the UK economy and indeed the environment. Yet, in this particular instance, it is probable that Drax’s shareholders would have been better off if the company had simply continued to generate power by burning coal,” Woodford said.
“If government cannot be trusted not to fulfil its long-term commitments then it will have to accept that it cannot rely on support from institutional investors. That would not be a good outcome for the UK economy.”
Five FE Alpha Managers you should be buying and selling
According to data from the AIC, discounts in investment trust land has never been tighter (the average is now just 2.2 per cent) thanks to renewed appetite for risk among investors and continuing longer term trends such as boards buying back shares to protect shareholders.
Therefore, using Numis Securities’ in-depth half-yearly report, we took a closer look at some of the biggest name fund managers to see what the brokers recommend investors should do with their trusts.
For example, the analysts viewed Mark Barnett’s Edinburgh Investment Trust and Alex Wright’s Special Values trust as buys and said investors should just ‘hold’ Terry Smith’s new emerging market trust, given its once substantial premium has reverted closer to NAV.
However, Numis said Nick Train’s top-performing Lindsell Train IT was a ‘sell’ given its massive 25 per cent premium and that investors should bank profits from Woodford Patient Capital, which has already jumped onto a double-digit premium.
“The rating of investment trust new issues is often supported by entering the FTSE All Share within a few months of IPO. This leads to substantial buying from index trackers and often results in a substantial premium to NAV,” Numis said. “In our view, this typically represents an opportunity to take profits. At present, Woodford Patient Capital is in this situation.”
Global funds putting their rivals to shame
Global funds underperform their benchmarks more often than not, with only 78 out of 272 funds outperforming the MSCI AC World index over five years to date, according to FE Analytics.
However, reporter Lauren Mason has compiled a list of global funds that have consistently beaten both their sector average and benchmark over short and long-term time frames, including the four FE Crown-rated Artemis Global Equities fund, which has been managed by Peter Saacke for over a decade.
Martin Bamford, chartered financial planner and managing director at Informed Choice, told FE Trustnet: “Outperformance appears to have come from the lack of restrictions placed on the fund and manager. Peter Saacke can invest in any size company, any sector and any geographical area. Many global funds are constrained by their benchmarks, so a fund like Artemis Global Growth has the freedom to do what Artemis aim to do, hunt profits.”
Other funds that are putting their global rivals to shame include Rathbone Global Opportunities, Baillie Gifford Long Term Growth and Old Mutual Global Equity.
Alex Wright: The market’s not cheap but these sectors are screaming value
Fidelity Special Situations fund manager Alex Wright spoke to reporter Daniel Lanyon earlier this week regarding both his worries about market levels but also his bullishness on a few key areas.
Wright, who has managed the fund for just 18 months but has an embryonic reputation as a star fund manager of the future, is betting on banks amongst other things.
He says banks’ dividends are set for growth while their balance sheets are increasingly strengthening, which should have the combined effect of driving their share prices higher.
“You haven’t seen very much re-rating of the banks in the past six years but you have seen dramatically improved capital ratios and therefore increasing safety in banks because of the strength of the balance sheets, which is not reflected in the price that you are paying for them,” he said
“Going forward this sector is going to pay out very high income and will start to attract more income investors. I expect that to lead to a re-rating of these stocks over time.”
Click through to see where else the manger is finding value.
Dampier: Old Mutual’s ‘other’ funds I’m amazed investors ignore
Lanyon also spoke to Hargreaves Lansdown head of research Mark Dampier, who revealed his opinion that the Old Mutual equity team are the most underappreciated in terms of skill in the whole industry.
“They have been doing really well for years. They are really underestimated,” Dampier said.
In particular he said Luke Kerr’s £311m Old Mutual UK Dynamic Equity fund is hidden gem and that more investors should take note of.
The fund is consistently one of the best performing funds in the IA UK All Companies sector over one, three and five years and has returned 230.15 per cent since the manager launched the fund in June 2009.
Performance of indices in 2014
Source: FE Analytics
Richard Buxton: The stocks I’m buying and selling in Old Mutual UK Alpha
Over on Trustnet Direct, star manager Richard Buxton revealed which stocks he has bought and sold in his Old Mutual UK Alpha fund over the past month.
The manager said he had bought into Pets at Home due to its “brilliant business model” and resilience in economic downturns.
“There is massive growth in that market, and as was demonstrated during the financial crisis, it is virtually recession-proof as people would rather starve themselves than starve the pooch,” he said.
Buxton bought Pets at Home using proceeds from the sale of Unilever, which he got rid of due to concerns about its price, the outlook for emerging markets and the impact of interest rate rises on so-called bond proxies.
