View the article online at http://citywire.co.uk/wealth-manager/article/a758571
Old Mutual’s Message: It’s time to ditch equity safe havens
by Eleanor Lawrie on Jul 01, 2014 at 14:22
Citywire A-rated Old Mutual Global Investors UK Equity Income fund manager Stephen Message (pictured) has resisted buying into outperforming consumer names, as he thinks they are priced for perfection on a strengthening economy.
Message, speaking at Citywire Scotland, explained his fund’s significant underweight to consumer goods, with no exposure to food producers or beverage companies, has been the main driver of its short-term underperformance.
At the end of April, the fund was bottom quartile year to date, falling by 0.1% as the IMA UK Equity Income sector rose by 1.8%.
‘We are still underweight mid caps, although less than we were a year ago, and underweight consumer staples, which have performed very well this year,’ the manager said.
‘The thing that surprised me, and the markets, is we thought we would see a gradual rise in yields, but what we have actually seen is a flattening of the yield curve, meaning safe-haven companies performed better than I anticipated.’
Safe havens are dear
But Message, who has managed the fund for four and a half years, said these names are looking relatively expensive in a world returning to growth.
‘Valuations are priced in for these safe havens. I do not want a lot of exposure to consumer staples or utilities as I don’t want to be holding bond proxies, which perform well when yields have fallen but I struggle to see how they can perform like that again,’ he said.
‘These companies – which were bought for their relative safety – we are not as keen on in a rising bond yield environment.’
Over one year to the end of April, the Old Mutual UK Equity Income fund is second quartile, while over three and five years it is top quartile.
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