Equity bull-run is round the corner, says leading fund selector

Investors are in danger of missing the big picture by dropping their equity exposure as a turnaround in the asset class's fortunes is looming, says Peter Fitzgerald of Aviva Investors.

The leading selector told Citywire Global that during periods of extended pessimism cutting allocations to equities was not unusual, but investors should focus more on key indicators.

‘It usually pays to buy into equities. Historically, if you look at the VIX index it tells you that volatility equates to fear. Almost all excess returns in equities have been made when the VIX is really high. The time to be worried is when no one is worried.’

‘As difficult as it is at this time, my view is that we are setting a potential scene where equities will do quite well.’

An inherently cautious investor, Fitzgerald says he is having to fight his own urges to retreat from the market but his contrarian conscience is telling him there is money to be made and he should remain invested across a range of equities.

‘I’m a natural bear. I hate losing money and my initial instinct is to ask what is going to go wrong. So for me it is psychologically difficult to buy at this kind of time but sometimes it just has to be done.’

‘There is a degree of contrarianism [to my actions] and it is also tied up with the fact that equities are not outrageously cheap at the moment. But when you compare them to government bonds then they are relatively cheap.’

Some large cap blue chip stocks are offering a 4% dividend, says Fitzgerald, while 10-year government bond yields can be at only 2%.

But one of the big challenges is finding managers that share his view and can offer him a good spread in terms of equity exposure.

‘The worry is everybody is absolutely paranoid about what could happen in Europe and it seems that portfolios are being positioned for Europe to disintegrate in some form.'

‘The managers themselves have become extremely bearish. We want to ensure we are not underweight equities and invest in managers that are still willing to take a little risk in their portfolios.’

In this scenario he is maintaining his exposure to key players and has also increased his assets in iShares.