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Standard Life Investments UK Equity Unconstrained
by Saleem Shivji on May 16, 2013 at 10:00
Equities cheap as bond yields remain low
Edward Legget, manager of the SLI UK Equity Unconstrained fund, acknowledges that the absolute value of the stock market is in line with historical earnings-to-yield measures. However, he still sees equities as relatively cheap compared to other asset classes.
'The continuation of quantitative easing (QE) from the Bank of England (BoE), the Fed and Japan...has pushed bond yields down to new lows,' Legget explained.
'The market could re-rate significantly higher if people get confident in the world and policy makers continue to keep yields on other asset classes at very low levels.'
Legget foresees central banks continuing with quantitative easing until economies pick up and unemployment falls. He also believes the great rotation from bonds into equities is a 2014 story, as regulation has made it difficult so far for life companies and pension funds to invest in equities.
Opportunities in Europe
AA-rated Legget agrees that the tensions in Europe of last summer have abated but does not feel that sentiment is in line with macroeconomic data from the area.
'We certainly hoped that the decline in peripheral bond yields would lead to improvement or some stabilisation in those peripheral economies, in particular Spain and Italy. Evidence of that is pretty scant at the moment.'
As a result, his European plays focus on companies with the potential to increase their market share such as Easyjet and DS Smith. Legget sees a benefit for Easyjet in this area if smaller competitors go out of business.
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