FUND SELECTOR UK EQUITIES
What the future holds
UK equities have performed badly in recent years, and the recession has
only exacerbated their plight. What does 2010 have in store for the asset
class, and are there any signs of a sustained recovery?
BY SIMON DANAHER
It is no secret that UK equities
have suffered over
recent years. We have seen
one of the worst recessions
and stock market declines
in many people’s working
lives, brought about by a
Western-led credit crisis
which at one point looked
set to engulf our entire
financial system.
The following aftershocks
sent repercussions
through almost every
industry, sector and stock.
As the performance data
over the next few pages
show, very few UK equity
fund managers successfully
held their head above the
rising tide.
l The turning point
Since the start of the stock
market woes, we have
seen the FTSE 100, All
Share and 250 indices
make daily and monthly
losses. More recently,
record losses have turned
to huge gains as many UK
stocks reaped the benefits
of changing sentiment.
One of the biggest turning
points of this period
was the month of October
in 2008 when, if you had
continued to hold financial
stocks, your portfolio
would have borne the
brunt of a collapse in UK
equities.
Similarly, March of 2009
was another significant
month, marking the beginning
of a steady and strong
stock market rise (the FTSE
100 was at 3,512 points on
3 Mar ’09 and was at 5,412
at 31 Dec ’09), and those
who had bought into previously
unloved stocks,
often those which were
highly leveraged, would
have been handsomely
rewarded.
l Relative optimism
It is also worth noting that
while the last three years
have included one of the
worst recessions and stock
market declines in recent
history, the seven years
preceding this were not
particularly good to UK
equities either. Indeed,
research shows equities
have been the worst performing
asset class since
1999 – with 2008 the
second worst recorded
year. With this in mind,
what is in store for UK
equities in 2010 and the
coming years?
Mervyn Douglas, UK
FTSE All Share over 3-years
20
10
0
-10
% -20
-30
-40
-50
FTSE AllSh TR £
-60
Jan ’07 Jul Jan ’08
Source: Morningstar
equity fund manager at
Aviva Investors, believes
with the equity market
having rallied so strongly
since March last year, the
pace of any further rally
will be greatly reduced.
“Nonetheless, we expect
investors to earn a reasonable
return from holding
equities in 2010 and the
asset class will be kept in
buoyant mood by near-zero
interest rates,” he said.
“The recovery in 2009
Jul
Jan ’09
Jul
Jan ’10
analysis
was concentrated in financials
and cyclical stocks,
but in 2010 is likely to
spread across a greater
number of sectors.”
Simon Nichols, manager
of the Jersey-domiciled
Newton OFS UK Equity
Fund, is also relatively optimistic
about the year ahead,
but says the uncertainty
around May’s general election
and the withdrawal of
quantitative easing could
be a cause of concern.
“The markets bounced
significantly last year but it
must be remembered this
was largely due to the bailout
of the banks and the
Government’s quantitative
easing programme which
is due to complete at the
end of this month.
“There is also the election
coming up this year
which is likely to see a
Conservative government
elected and an emergency
budget 50 days thereafter.
This could also worry the
stock market.”
“
We expect
investors to earn a
reasonable return
from holding equities
in 2010 and the asset
class will be kept in
buoyant mood by
near-zero interest
rates
” Mervyn Douglas, UK equity fund
manager, Aviva Investors
FEBRUARY 2010 [www.international-adviser.com] INTERNATIONAL ADVISER
17
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