Standard Life Investments Outlook 2010
in the intervening period.
Tim Cockerill, head
of research at Ashcourt
Rowan, believes that most
investors will continue to
begin the equity asset allocation
process by taking a
regional perspective, then
perhaps take a look at
single countries. This takes
into account broad assumptions
or expectations about
particular markets, for
example that emerging Far
East will deliver faster rates
of growth with potentially
more risk attached, or that
Japan is driven by exports
with the rest of Asia now its
biggest market.
However, he stresses
that it can be a hard task to
fine-tune allocation when,
at times such as these,
many fund managers are
making large changes to
their portfolio.
l Currency exposure
He explains: “You could
pick a fund that has low
turnover and is likely to
remain in a position for a
considerable time, but there
are other funds that are
more dynamic and therefore
you are going to get
a greater ebb and flow
of exposure to overseas
markets. For example, Dan
Nickols, manager of the Old
Regional fund performances – 3 years
-10
-20
North America
-30
Japan
-40
UK All Companies
Dec ’06 Jun ’07 Dec Jun ’08
Source: Financial Express Analytics
INVESTMENT STRATEGIES GEOGRAPHICAL ALLOCATION
Positive Negative Standard Life Investments view
US equities The recession is ending in response to
major policy measures, such as fiscal
Squeeze on corporate margins is still forcing
cuts in investment and employment restraint.
Market supported by favourable long-term
valuations and easier monetary and fiscal
packages and quantitative easing. Continued uncertainty about extent of policy despite credit concerns.
Valuations are attractive, especially as
companies return to profitability
downturn in the housing sector. STAY HEAVY
European Management responding to pressures Exports remain under pressure due to euro The region remains vulnerable to the
Ex UK equities on margins through cost cutting and appreciation and sharp slowdown in global strength of the euro currency impacting
more M&A activity. Parts of the region trade. Continued concerns about efficacy on company margins.
did not experience as large a credit
boom as other countries
of policy response in Europe STAY LIGHT
UK equities More aggressive monetary and fiscal
support than in many other countries.
Oil and resource companies vulnerable to
sharp falls in commodity prices. Concerns
Despite concerns about the valuation of a
number of cyclical sectors, the market is
Valuations such as dividend yields remain about extent of consumer and housing supported by favourable valuations.
provide underpinning for the market. bad debts as unemployment rises. STAY HEAVY
Japanese Japan’s financial sector is in a stronger Companies facing much weaker export Growing concerns about the impact of
equities position than in some other countries. demand from the US and Europe. Domestic deflation on profit margins while the
Increasing dividends plus share data suggests economy is suffering a policy response is more limited than
buybacks are helpful for investors. severe recession. elsewhere. STAY VERY LIGHT
Pacific basin
ex Japan
Infrastructure spending remains a
primary driver of many economies.
Earnings at risk from weak exports to the
major industrialised economies. Concerns
Long-term valuations are a concern but
governments are taking action to support
equities Consumer demand is picking up on about eventual policy tightening in China domestic activity.
the back of real disposable incomes. to cap inflation risks. STAY LIGHT
Source: Standard Life Investments
50
40
30
20
10
%
0
Europe
Excluding UK
Global Emerging Markets
Dec
Jun ’09
Dec
Mutual Smaller Companies
Fund has had annualised
turnover of around 200%.”
Stokes also shares these
concerns, and warns investors
to be particularly wary
of multi-cap funds that can
rapidly change their asset
mix to suit the fund manager’s
view. He adds: “The
fund manager may feel that
they have got better earning
power within mid and small
cap stocks. You could actually
find within a period of
time, in a matter of weeks,
that your decision to buy
something has moved from
more international flavour
to a domestic bias.”
Another important con-
Price returns
400
350
300
250
% 200
150
100
50
MSCI Emerging
sideration, of course, is currency
exposure, a concern
which Michael Howell,
managing director at Cross
Border Capital, sees as the
most important part of his
allocation call.
This is particularly relevant
at present with speculation
about possible interest
rate hikes across the
globe in 2010. Howell has
positioned his Pulsar funds
for a strengthening of the
dollar in the belief that
the US Fed could begin
tightening sooner than the
market is pricing. He has
also been hedging against
decline in the values of
euro and sterling.
MSCI World
0
’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09
Source: Saltus
SUMMARY
In general terms, blue chip
stocks listed on major indices
such as the FTSE 100 and
S&P 500 are increasingly
deriving profits from overseas,
particularly emerging markets.
Investing in thematic funds is
gaining traction as a valuable
way of gaining global market
exposure without making
geographical bets.
Some argue that keeping close
scrutiny on currency exposure
can have a larger influence
on returns than actual
geographical segregation.
JANUARY 2010 [www.portfolio-adviser.com] PORTFOLIO ADVISER
19
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