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WM Quarterly Outlook: how leading investors are positioned for 2013

by David Campbell on Jan 16, 2013 at 00:01

For obvious reasons, European equity allocations have been the most volatile over the period Wealth Manager has tracked them. While a large shift by the standards of other asset classes, the 20.8% Q4 change is still only the fifth largest quarterly move in European equity since Q1 2011.

Stephen Peters, analyst and multi-manager at Charles Stanley, Ben Gutteridge, Brewin Dolphin’s head of fund research, and Colin McInnes, founder of Quartet Capital, were among the opinion formers tipping European equity as one of the biggest opportunities of the year ahead.  

‘We believe that quality, globally diversified companies listed on European exchanges offer the most value,’ said Paul Denley chief investment officer at SC Davies.

‘Well-managed companies based in Europe with strong international revenue streams and access to cheap debt have been relatively unaffected by events in the eurozone, but have fallen to very attractive valuations due to uncertainty and negative sentiment.’

Measured positivity

Whatever positivity was detectable was very measured however, and risk appetite was much tempered compared to Q2. David Man, partner at RMG Wealth, said: ‘It is difficult to see enough growth to raise corporate profits to anything but sub-standard returns.’

Richard Scott of Hawksmoor added: ‘The overall environment for economic growth should improve slightly, but it is likely to remain quite fragile. The allocation within some of these asset classes is more important than the headline “over or underweight” positions. It will be a good environment for active stockpickers in most asset classes.’

That view of tempered optimism was expanded on by his colleague Daniel Lockyer: ‘It is getting harder to find value now that many asset classes have been rerated due to yields being suppressed at historic low levels.‘But we are excited about prospects for Japanese, European and emerging (including frontier) equities where valuations are attractive and only a small improvement in investor confidence is required to see a healthy rerating.’

After the rapid rebound in outlook in Q3, a similarly cool reappraisal of broader economic prospects was also evident. At the coolest end of the scale, inflation expectations basically collapsed over the three months, with the numbers expecting an increase in global inflation over the next 12 months falling from 40.7% to 3.2%, by a wide margin the lowest the survey has ever recorded versus the previous low of 34.5% in the first quarter of 2012.

Why it should do so now is a puzzle. The number of respondents predicting an increase in corporate profits also fell to a record low, falling from 33.3% to 16.1%, but breaking the record by a relatively narrower margin versus 29% in Q4 2011. A similar crash in optimism was evident across both expectations of investor sentiment and global growth.

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