Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a978980

James Carthew: the managers backing a golden era for value

Could this be the start of a great rotation into value stocks? Marten & Co director James Carthew puts forward the case.

 
James Carthew: the managers backing a golden era for value

Are we at the end of an era? For many years now we have lived in an environment of ultra-low interest rates and quantitative easing. However, over the past few weeks, we have also seen the start of a big rotation in markets.

This seems to have been triggered by Donald Trump’s election as US president and an expectation that his policies will stimulate economic growth and interest rates will start to rise.

John Bennett, manager of the Henderson European Focus trust (HEFT) , highlighted this in his recent manager’s report. He says that the period (almost a decade he thinks) in which investors have favoured quality growth stocks may be coming to an end.

He has been buying European banks recently in anticipation of rising interest rates, which can improve profitability for these companies because they can lend money to customers at a higher rate. The nervousness created by prime minister Matteo Renzi’s defeat and resignation in Italy and the effect this is having on the recapitalisation of struggling Italian banks makes that look like a bold move.

Deutsche Bank’s woes are also well documented. However, it is possible that this latest crisis for the European banking sector could mark the bottom of the cycle for them. If Bennett is right, Henderson European Focus will be well rewarded.

Sticking with banks, Mark Whitehead, manager of Securities Trust of Scotland (STS ) thinks the Federal Reserve may be strong-armed, on the back of Trump’s policies, into raising rates. He is looking at increasing that fund’s exposure to US banks on weakness, focusing on well capitalised regional banks, to take advantage of this.

Comparing the one-month net asset value (NAV) performance of Global Equity Income funds and Global funds, the evidence of market rotation is patchy but is there to see. Scottish Mortgage (SMT ), which is arguably the most growth focused global fund, has lost money since the US election.

The winners have been trusts such as Majedie Investments (MAJE ), F&C Global Smaller Companies (FCS ) and JPMorgan Global Growth & Income (JPGI ), which are underweight consumer staples. The worst performer has been Murray International (MYI ) (down 4.9%) which is heavily weighted to that area. It is a big reversal of fortune for that fund, which had a good run of performance over the previous 12 months after an extended period of underperformance of its peer group.

Bruce Stout, manager of Murray International, has been very worried about the increasingly desperate attempts by governments and central bankers to stimulate growth. His portfolio is focused on high quality companies with defensive earnings such as British American Tobacco (BATS) and Philip Morris (PM). These are exactly the sort of stocks that were hit after the election and tend to be left behind in a cyclical rally.

Brexit question mark

In the UK, the market is still heavily influenced by whatever version of Brexit looks most likely at any given time. Setting aside the big winners from the relief rally in the pharmaceuticals sector (which distorts the cyclical versus defensive picture), the largest rises in net asset values (NAVs) since the election have been delivered by smaller companies funds such as Chelverton Small Companies Dividend (SDV), Right and Issues (RIII ) and Aberforth Smaller Companies (ASL ).

Within the UK All Companies and UK equity income sectors, the winners have been Fidelity Special Values (FSV ), JP Morgan Mid Cap (JMF ), Lowland (LWI ) and Standard Life Equity Income (SLET ). By contrast, Finsbury Growth & Income (FGT ), Troy Income & Growth (TGIT ) and Perpetual Income & Growth (PLI ) have fallen in value.

Sign in / register to view full article on one page

4 comments so far. Why not have your say?

Greyinvestor

Dec 24, 2016 at 10:01

I never cease to be surprised by fund managers such as John Bennett who try to second guess which type of company is going to be favoured by economic factors such as increasing interest rates, which in any case are difficult to predict. The best companies are those which are sufficiently resilient to perform reasonably well under all economic conditions. Just buy and hold those companies and you won't go far wrong, your dealing costs will also be lower.

report this

david rogers

Dec 24, 2016 at 12:02

jmf a winner, fgt a loser? not if share price is the criterion!

report this

john_r

Dec 26, 2016 at 16:42

Agree with DR above - some of the statements in the article appear to be based on a fantasy portfolio not reality.

The reality is that Finsbury Growth was up 7% over the year and JPM Mid Caps 15% down.

Who can you believe?

report this

richard tomkin

Dec 31, 2016 at 10:08

As one grey investor to another ( supra ) may I endorse his buy and hold approach.The grass is always greener somewhere else : do not be tempted!

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Greater Europe and Emerging Europe A comprehensive approach to investing in Europe


Making the most out of Europe's potential means seeing things differently. Learn more about how BlackRock's focused approach to investing in Europe helps investors unlock the continent's vast potential.

Watch Now

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the shares

  • Deutsche Bank AG
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • British American Tobacco PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Philip Morris International Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • Henderson European Focus Trust (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Securities Trust of Scotland (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Scottish Mortgage (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Majedie Investments (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • F&C Global Smaller Companies (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Murray International (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Rights & Issues (Pref 2016)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Aberforth Smaller Companies (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Fidelity Special Values (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • JPMorgan Mid Cap (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lowland (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Standard Life Equity Income (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Finsbury Growth & Income (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Troy Income & Growth (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Perpetual Income & Growth (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • JPMorgan Global Growth & Inc (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • John Bennett
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Mark Whitehead
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Bruce Stout
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Alex Wright
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Nick Train
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

What others are saying

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet