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Performance review: UBS Wealth duo bet on a weaker euro
by Elsa Buchanan on Apr 23, 2014 at 14:11
UBS Wealth Management’s UK chief investment officer Bill O’Neill and portfolio manager James Mulford are backing European equities as a key beneficiary of a weaker euro.
The two had taken profits in Japan within the UBS Global Balanced fund at the end of last year, recycling cash into eurozone equities.
‘That worked well for us, Japanese equities were up 47% last year in yen terms,’ said O’Neill. ‘But eurozone equities will play catch up in terms of profit margins and earnings growth.’
A 9.2% allocation to Europe is run via the BlackRock European Dynamic , managed by Citywire AA-rated Alister Hibbert, and JO Hambro Continental European funds, which beat the MSCI Europe ex-UK index by 4.8% and 5.5% respectively over one year. The latter is run by A-rated Paul Wild.
‘A weakening euro is a key theme in the portfolio. As many of the earnings are generated overseas, you get a tailwind with a weak euro as you repatriate those earnings,’ Mulford said.
Within that allocation he is playing a recovery in financials, particularly banks, where he expects earnings to continue to strengthen.
The duo say prices in Europe still look historically cheap to fair value. While performance was driven by a price-to-earnings rerating in 2013, this year’s market has to be driven by earnings growth.
They point to forecasts of 9% earnings growth in the US versus 14% in Europe. ‘There is a lot baked into the cake and if it doesn’t come through it could be difficult for markets to go higher.’
O’Neill highlights UBS’s forecasts of 7-9% total returns in developed markets. On a six-month view, they expect the S&P 500 will stand at 1,950, while the FTSE could hit 6,725.
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