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Wintle: bond to equity switch will be mother of all allocation changes
by Emma Dunkley on Oct 24, 2012 at 07:00
The transition from over-priced bonds to attractively valued equities will be the key asset allocation switch of the next few years and will see money flood into US equities, according to Neptune’s Felix Wintle.
Wintle, the group’s head of US equities, said that when the transition to equities occurs, which could be imminent or in a few years’ time, the US market will be the initial beneficiary.
‘The bond-to-equity switch will be the mother of all asset allocation changes,’ he said. ‘It’s got to happen, we are at the end of a 30-year bull run [in government bonds], and equities are superb value. They also offer very attractive dividend yields. Flows will come to the US first; it’s the biggest market.’
Despite immediate headwinds in the form of the presidential elections and potential fiscal cliff, strong fundamentals support the bull case for US equities, which should spur the market to continue to outperform.
‘US corporates have never been in better shape,’ said Wintle. ‘There will also likely be independence of energy supply in the US – they are gas guzzlers, the biggest consumers in the world – and I don’t see that changing. ‘If they can achieve energy independence, then that’s a massive bullish point for the economy over the next decade.’
He explained there are a number of companies ‘re-shoring’ and setting up in the US, as wages and the cost of manufacturing increases in China and other developing markets.
US develops into a dividend market
Rebecca Young, manager of the Neptune US Income fund, said although the US has not traditionally been perceived as a market for equity yields, it is now increasing its dividend payments, which grew at 16% last year and are expected to grow 15% in 2012.
‘Corporate profits are at $2 trillion, near record levels,’ Young said. ‘These companies were efficient during the downturn, and now they’re expanding.’
She said US companies are ‘swimming with cash’, with 14% of all assets across companies held in cash, leaving them well positioned to pursue merger and acquisition activity, reinvestment and increase their dividends.
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