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Andrew Bell: 'still markets may conceal crocodiles' in 2016
Chief executive of Witan investment trust looks back at a difficult year in markets and assesses investment prospects for 2016.
Andrew Bell, chief executive of Witan (WTAN ) investment trust, looks back at a difficult year in markets and assesses prospects for 2016.
In this video interview, Bell predicts the consumer benefit of low oil prices will be felt next year even though it was not apparent in 2015.
Bell also reveals how he and his co-manager use futures to fill any gaps in the investment strategies of the external managers they use to run the company's assets.
He also explains why he is cautiously becoming more interested in emerging markets, although Witan currently has little invested there.
Can't watch now? Read the transcript
Gavin Lumsden: Hello, with me today is Andrew Bell, chief executive of Witan investment trust. Andrew thanks very much for coming in. Now we’re going to talk about the year that’s been and have a look to the year ahead. Has 2015 proved more difficult than you expected earlier in the year?
Andrew Bell: Yes it has actually. In some ways it’s been similar to 2014 in that for a lot of the year markets backed and filled around the zero mark and it felt it was quite difficult to make shareholders money. But the surprise for us was the oil price, having collapsed at the end of last year, we thought there’d be a bit of a resurgence of growth because of the benefit that confers on consumers of oil.
What’s actually happened is that the companies and countries that suffered the collapse in the oil price have had to react more sharply and have reacted more quickly cutting back spending and the Saudis selling investments and so forth, whereas the beneficiaries are much more thinly spread, the people who have to spend less money on petrol. So the hit to growth in the first three quarters of the year was surprisingly sharp from cutbacks in capital spending and so forth and that has masked the fact that consumer spending has actually held up well in North America, the UK and Europe.
GL: So if you’re looking ahead do you think that consumer boost could grow and outweigh some of the negatives we’ve seen like the slowdown in China and that sort of thing?
AB: It’s hard to see the cutback in capital spending being as sharp next year for the oil sector because it has been so severe in 2015. The consumer, I think, is going to have increased confidence that this is not just a one-off windfall, that we could be in for a period of years where oil prices are significantly lower than we’ve been used to. Some of the saving that, as it were, has been put in the bank as the savings ratio has risen in several countries I think will be run down next year as consumers will be more likely to spend the benefits of lower prices next year. And meanwhile, though we’ve had all these reports that the oil sector’s earnings have halved and so forth …
GL: which has had a big impact on the FTSE 100.
AB: Exactly, huge you know because the UK is particularly heavily weighted in mining and oil stocks, that’s held back corporate earnings. But there are a lot of companies, every company has an oil bill or some sort of energy bill and they’re going to benefit from having lower energy costs.
We really haven’t seen any of the positive side of lower input costs from companies and so I think after 12 months or so when corporate earnings have disappointed, I’m not expecting them to run away to the races because I think the oil sector and the mining sector may remain under pressure. But I think we will start to see a return to earnings growth next year and that should lift the ceiling that has hung so heavily on equity markets.
GL: Now in terms of your asset allocation you’re quite weighted to the UK, which makes sense as a lot of your shareholders will be in the UK. But you’ve got a big slice in the US as well. Are you thinking of any changes in the year ahead? People say that the US stock market is quite expensive.
AB: Yes, well it’s very much driven by the stock picking choices of our managers. If they think three are more opportunities to find attractive companies in North America then other things being equal we will tend to be overweight in North America. If we felt they were making a big mistake or there was a huge risk in doing that, we can take action, we can sell American futures or we could invest more money in other regions but otherwise, the reason we are at the moment overweight in America is because of the stock picking of our managers who typically are relatively underweighted in Europe and in south-east Asia.
Now looking in the future, you’re right most people think the US equity market looks more demandingly valued and if next year shows an improvement in economic conditions it’s probably cheaper to buy that improvement in other parts of the world.
GL: I take your point that the managers are stock pickers, they’re having a bottom-up look at the world but you, as their boss, as it were, as their selector, you’re looking more top down.
AB: We’re on the bridge as it were, trying to check that the ship is moving in the right direction. We have the ability to overcall where the investment management decisions have been. For example, for most of 2013, 14 and the early part of this year we had a significant investment in Japanese equity futures because we felt Japan was an opportunity that they were missing out on at the stock level.
GL: And that’s done very well.
AB: And it has done very well. We closed that position down in the first quarter which was decent timing but we haven’t timed getting back into it but nonetheless we saw there was a missed opportunity and we invested. And over the autumn on a couple of the days when the markets were really choppy we invested some money into emerging market futures and into FTSE futures when the markets were particularly bombed out and so far, although markets have been very volatile, since then we hit a low point in August and we hit a low point in September and that’s where, particularly in the case of emerging markets we have quite a low weighting and people are mostly universally bearish.
And you have to be a bit careful when the whole world decides something is bad. You have to pay respect to the reasons why they think that but I think it’s also wise to be a contrarian because choppy waters are known to be problematic but still markets may conceal crocodiles and we would rather go to the areas where risks are already priced in and known about and that’s why we’ve been gradually increasing our exposure to emerging markets.
GL: That’s very interesting. Andrew thank you very much.
AB: Thank you.
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