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Six wealth managers' top second half investment picks

As we enter the latter half of the year, we asked our readers what opportunities they see on the horizon.

Jeroen Bos, investment director, Church House Investment Management, London

‘Now that Brexit negotiations have finally started, we should expect there to be periods during the next six months where volatility will be greater in both equity and currency markets, depending on how these negotiations develop.

‘There is a small cap stock quoted on the London Stock Exchange, Record, which might be of interest. This company, a specialist currency manager, should act as a hedge on any weakness that sterling would suffer during these negotiations. The company reports assets in US dollars, but reports results in sterling.

The company now seems to be entering a period of strong growth, with assets growing, as well as a growing number of clients. It released results in June, which showed further progress had been made, with pre-tax profit up 28%, an increased final dividend, the payment of a special dividend and a tender offer for 10% of the outstanding shares.

‘These factors should support the share price in the medium term, while further hedging mandates, which we should expect on heightened currency volatility will help the company to make further progress.’

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Jeroen Bos, investment director, Church House Investment Management, London

‘Now that Brexit negotiations have finally started, we should expect there to be periods during the next six months where volatility will be greater in both equity and currency markets, depending on how these negotiations develop.

‘There is a small cap stock quoted on the London Stock Exchange, Record, which might be of interest. This company, a specialist currency manager, should act as a hedge on any weakness that sterling would suffer during these negotiations. The company reports assets in US dollars, but reports results in sterling.

The company now seems to be entering a period of strong growth, with assets growing, as well as a growing number of clients. It released results in June, which showed further progress had been made, with pre-tax profit up 28%, an increased final dividend, the payment of a special dividend and a tender offer for 10% of the outstanding shares.

‘These factors should support the share price in the medium term, while further hedging mandates, which we should expect on heightened currency volatility will help the company to make further progress.’

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Raj Basra, managing director, Tacit Investment Management, London

‘Banking stocks with a global footprint. As value investors, we believe equity markets misprice risks and opportunities through the investment cycle. Currently this attracts us to global banking stocks for their low absolute and relative valuations in the context of broader equity markets.

‘Low valuations alone do not make a solid investment: the stage of the economic cycle must also be right. As the global economic outlook has broadened over the past months, with Europe and the US now showing synchronised growth, we expect global expectations for interest rates to rise over the coming months. This will lead to increased earnings expectations from this sector and, coupled with current valuations, should lead to a rerating of these stocks.

‘We prefer global players rather than regional banks as this reduces localised political (and economic) risks.’

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Ali Hijazi, senior analyst research, Perinvest, London

‘The best investment opportunity of the second half of the year could be long volatility.

‘The Federal Reserve is poised to raise interest rates once more this year as well as start to shrink its balance sheet. While the European Central Bank should announce in September that it is winding down its QE program.

‘This monetary tightening, along with the fact that stocks are near all-time highs, bond yields and the VIX are close to all-time lows means there is a high probability of mean reversion and with it an increase in volatility.’

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Giles Marriage, office director, Thesis Asset Management, Lymington

‘Emerging and developing markets account for around 50% of world GDP today, with forecasts telling us that could rise to near 80% in 2050. This begs the question why investors remain so structurally underweight.

‘Although emerging market asset classes aren’t as cheap as at the start of 2016, valuations still look attractive on the back of continuing cyclical earnings and growth momentum, fuelled by welcomed domestic and intra emerging market trade.

‘This is not to say that the picture is entirely without peril, with the spectre of a disruptively protectionist US government, a late cycle bounce in the dollar, or a re-emergence in Chinese growth worries still affecting sentiment.

‘These issues can however, partly be mitigated by choosing a good active manager to find opportunities in the ever-growing emerging markets spectrum. Our favoured emerging market funds are run by Stewart Investors and Baillie Gifford, with their complementary styles and focus.’

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Andrew Moffat, investment manager, Hargreave Hale, Bangor

We live in interesting times. A decade after the financial crisis, economies remain in the recovery ward. Despite the fact the US economy is now entering its second longest post war period of economic expansion, and unemployment in the industrial world is approaching historical lows, the man on the street has been disenfranchised. Wage growth remains mediocre and the political process has become totally unpredictable.

Markets meanwhile, on a tonic of low interest rates and resilient corporate earnings growth, continue to grind upwards. With long-term structural factors at play, these conditions will not change. Economies, burdened by high debt and an over-spent consumer, will remain in the doldrums with no sign of a cyclical recovery.

Short and long rates will peak around these levels and equity yields will remain attractive. The corporate sector will continue to benefit from low labour costs and low real rates but equally face the most competitive environment for decades as prices remain low, top line growth is mute and the ubiquity of technology is a game changer for ever.

The Cassandras will be wrongfooted again. Companies that can deliver predictable growth in a low inflation world will continue to out-perform and valuation will not mean revert. Dull is good, and equity stocks that can sustainably maintain dividend growth in the most punishing corporate environment seen for decades will continue to out-perform. More of the same.

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Michel Perera, chief investment officer, Canaccord Genuity Wealth Management, London

We like the Euro-zone banks. The rationale is:

  1. European banks have better Tier 1 ratios vs. US banks
  2. corporate lending has recovered
  3. European political risk is abating
  4. and
  5. ECB rhetoric is hinting at solid economic growth

Further points:

  • Bond yields should rise when the ECB signals a change in monetary policy, which should help European banks.
  • The EUR/USD rate is finally recovering and should benefit from further reduction in political risk and changes in ECB policy.
  • The European bank financial situation is improving: Spanish and Italian banks have recently cleaned up the lame ducks in their sector, S&P has upgraded the four largest German banks, Santander hiked its dividend, etc.
  • Valuations: European banks are not as profitable, well-managed or restructured as US banks, but US banks are trading at a large premium on price-to-book. Also, European non-performing loans benefit from steadily falling unemployment.

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