Sector report cover
*Multiple Sectors

28/11/2019
Equity strategy and market outlook - November 2019
Download via: Website

In this month’s strategy piece, Alastair believes that the impact of the easing of monetary policy during 2019 is still only likely to start to feed into the real economy by early 2020. The prospect of an improvement in economic conditions is now driving a substantial positive shift in investor expectations, leading to a reduction in risk premia and higher asset prices across asset classes. The US/China trade conflict appears to be moving towards a Phase 1 trade deal and at the time of writing the UK’s Conservative Party is sufficiently ahead in polling that in 2020 both a resolution to Brexit and a re-centring of British politics are now reasonable prospects, in our view. Nevertheless, based on the rally in global markets during the autumn, we believe a significant proportion of this political good news is in the price. Long term, the cohort of the largest global equities appears priced to offer returns in excess of currently very low yields on government bonds. We remain neutral on the outlook for equities, with the near-term risks of a relapse in confidence given the recent rally balanced against the more positive longer-term view. Finally, government bond yields appear at risk of further increases should the incoming economic data continue to improve.
Sector report cover
*Multiple Sectors

31/10/2019
Equity strategy and market outlook - October 2019
Download via: Website

In this month’s strategy piece, Alastair believes that the impact of the easing of monetary policy during 2019 is only likely to start to feed into the real economy by early 2020. This still has the potential to drive a substantial improvement in investor sentiment – where current positioning among institutional fund managers still remains bearish for now, according to recent surveys. However, we remain neutral on equities as in our view the risks are balanced. At this stage in the cycle it would not be appropriate to invest aggressively in global equity markets. In some respects, activity may have stabilised at a subdued level, but this would be a generous interpretation of the recent incoming data at this time. The US/China and Brexit political risks remain unresolved, even if for now there have been some significant positive steps and some of the more extreme scenarios appear less probable in the short term. With both the ECB and the US Fed now purchasing assets and on watch for further deterioration in the data, markets are however likely to be supported in the near term while awaiting resolution of the outstanding political risks.
Sector report cover
*Multiple Sectors

30/08/2019
Equity strategy and market outlook - August 2019
Download via: Website

In this month’s strategy piece, Alastair believes that over-optimistic expectations for US Fed easing and renewed trade tensions have rattled markets. The recent declines in global equities and rise in volatility since the beginning of August have highlighted yet again the headwinds of the US/China trade standoff, slowing global economic momentum and Brexit dynamics. The moves in bond markets over the same period have arguably been more significant. Reflecting fears that US Fed monetary policy is still lagging economic events, the US two-year/10-year yield curve slope is once again close to zero, indicating bond investors sense a recession coming. Familiarity with the risks could breed contempt, for the unwary. A challenge for investors is that none of the risks are ‘new’. Yet the absence of novelty does not make a risk less dangerous. The US/China trade conflict continues to escalate while in the UK, Brexit will come to a head in only a few weeks. Tension is building between value and momentum factors but we stick with our cautious outlook for now. Outside the US, equity valuations are slowly improving as many markets have delivered sub-par returns over the past five years even as corporate profitability has been strong. While possibly of interest to the long-term value investor, we remain cautious for the short term as incoming economic data remain weak and profits forecasts for 2019 are still under pressure.
Sector report cover
*Multiple Sectors

30/05/2019
Equity strategy and market outlook - May 2019
Download via: Website

In this month’s strategy piece, Alastair notes that the much-anticipated resolution to the US/China trade dispute has failed to materialise. Furthermore, the likelihood of any resolution in the near term appears modest at best. His earlier more positive views on equities for 2019 were contingent on a US/China trade resolution by mid-year and his outlook has therefore become more cautious. A downward turn in survey data and consensus earnings forecasts has been re-established and ebbing global earnings momentum during the past four weeks consistent with softer PMI indices and slowing trade data. Short- and long-term bond yields have fallen in recent weeks, reflecting market expectations of a slowdown. A steady build-up of debt in the corporate sector of China and the US will become a greater issue if the economy slows. Therefore, he believes investors should now focus on balance sheet quality in equity investments at this point in the cycle. He moves to a cautious view on global equities from neutral. Given the still significant rally since the year-end, there is time to reposition portfolios and he believes investors should focus on specific companies with lower than average exposure to cyclical factors and trade headwinds, given the cautious outlook.
Sector report cover
*Multiple Sectors

28/03/2019
Equity strategy and market outlook - March 2019
Download via: Website

In this month’s strategy piece, Alastair believes investors are taking a glass half-empty view of the recent dovish moves in US and eurozone monetary policy, which has necessarily been accompanied by meaningful downgrades to 2019 GDP forecasts. However, risk assets globally have rebounded strongly since December and largely anticipated these moves from central banks. In addition, quite realistic market expectations of a continued front-line role for monetary policy in warding off any future downturn may be a confounding factor in interpreting the recent flattening of the US yield curve. Consensus earnings forecasts for 2019 appear to have stabilised, suggesting corporate guidance is already up with the revised economic outlook. The Brexit process remains difficult to predict but the risk of a long delay has increased in recent days. Equity markets appear to be in a holding pattern likely to persist until an improvement in the economic data, while merger and acquisition activity may be incentivised by falling credit costs.
Sector report cover
*Multiple Sectors

31/01/2019
Equity strategy and market outlook
Download via: Website

In this month’s strategy piece, Alastair George believes that investors should avoid the temptation to sit back and spectate in Q119 as a prudent degree of risk-taking may be a better strategy. Valuations now offer a more attractive entry point for both developed and emerging equities while US monetary policy has largely normalised and US interest rate increases are now on pause. For US/China trade, a truce in 2019 could clear the way for Trump’s re-election in 2020 while in the UK, the chances of a delay or revocation of Article 50 are rising faster than that of a chaotic no-deal Brexit. Sharply declining survey data and continuing profits downgrades (even if profits growth still remains positive) are, however, two key counter points to the bullish argument. Nevertheless, a major slowdown in 2019 remains less probable than a soft landing at this point and global equity allocations should be at least at neutral rather than cautious, in his view. The strategy report was originally published on 17 January and has been updated to reflect recent market developments.
Sector report cover
*Multiple Sectors

17/01/2019
Equity strategy and market outlook - January 2019
Download via: Website

In this month’s strategy piece, Alastair George believes that investors should avoid the temptation to sit back and spectate in Q119 as a prudent degree of risk-taking may be a better strategy. Valuations now offer a more attractive entry point for both developed and emerging equities while US monetary policy has largely normalised and we are past the inflection point in terms of interest rate increases. For US/China trade, a truce in 2019 could clear the way for Trump’s re-election in 2020 while in the UK, the chances of a delay or revocation of Article 50 are rising faster than that of a chaotic no-deal Brexit. Sharply declining survey data and continuing profits downgrades (even if profits growth still remains positive) are, however, two key counter points to the bullish argument. Nevertheless, a major slowdown in 2019 remains less probable than a soft landing at this point and global equity allocations should be at least at neutral rather than cautious, in his view.
Sector report cover
*Multiple Sectors

29/11/2018
Equity strategy and market outlook - November 2018
Download via: Website

In this month’s strategy piece, Alastair George believes that 2018 has been the year that the US Fed normalised US monetary policy. Evidence of this is in the restoration of normal market volatility, lower global equity valuations and a strong US dollar, in addition to higher US interest rates. With Fed chair Powell suggesting in recent days that US rates are just below the broad range of the Fed’s estimates of the neutral level, expectations of a pause in US rate increases have risen, even if this observation is only consistent with previously published Fed projections. Even given the possibility of a further easing of Fed rhetoric in coming weeks, the investment outlook remains difficult to read in our view due to key political risks directly ahead, the most significant of which are the potential for a no-deal Brexit and US trade policy with respect to China. On balance, earnings risk keeps our cautious view on global equities in place. We are mindful of the 2015 experience where the resources and energy sectors continued to decline despite attractive valuations, until earnings forecasts stabilised. We can also see the relative merits of a risk-free 2.8% annual return on US two-year Treasury notes in the circumstances.
Sector report cover
*Multiple Sectors

25/10/2018
Equity strategy and market outlook - October 2018
Download via: Website

In this month’s strategy piece, Alastair George believes that global equity declines during October have had no clear trigger and therefore there is no clear path for a rapid recovery. Having considered the modest moves in other asset classes and the absence of credit stress, we view the global equity declines as a continuation of an ongoing de-rating process, as US monetary policy is normalised. We can understand that value investors might remain frustrated as there has been no sense of capitulation, nor obvious bargains at the market level. Fundamental risks remain in place as the US administration shows no indication of backing away from its trade confrontation with China. The UK’s Brexit negotiations remain unresolved while the EU has in recent days rejected Italy’s proposed budget. Finally, US Fed policymakers remain on the hawkish side of prior market and our expectations. We retain a cautious position on developed market equities. Although the valuation risks have certainly diminished in continental Europe and the UK, US markets still appear very highly valued in a historical context. Investors looking to take advantage of recent market volatility may find opportunities in specific situations where poor liquidity has led to disproportionate price falls. However, for the broader market, we believe the most likely scenario is that the de-rating process will continue, with profits growing while equities underperform traditional hurdles of 7-8% annual return.
Sector report cover
*Multiple Sectors

27/09/2018
Equity strategy and market outlook - September 2018
Download via: Website

In this month’s strategy piece, Alastair George believes that as investors turn to 2019, trade, populism and geopolitics will remain drivers of market volatility. However, the evidence from the US over the last 12 months shows that it is possible to gradually allow interest rates to rise without having adverse effects on financial markets or a reversal in the economy. With a stronger US dollar, emerging markets have underperformed but we have not yet seen the declines in earnings estimates or tightening of EM financial conditions which suggest a widespread crisis is around the corner. Ten years on from the global financial crisis, the unfortunate legacy may have been to transform a quantifiable private sector economic challenge into a much less well understood popular political movement on both sides of the Atlantic. In some respects the rise of the Brexit movement and the UK’s resulting political difficulties is just one example. We expect a Brexit risk premium to remain in place for UK assets until the political uncertainty has diminished. We retain a cautious position on developed market equities, due in our view to a continuation of the benign derating regime as profits grow while markets underperform traditional hurdle rates for equity investment of around 7-8% pa.
Sector report cover
*Multiple Sectors

30/08/2018
Equity strategy and market outlook - August 2018
Download via: Website

In this month’s strategy piece, Alastair George takes heart from Fed chair Powell’s most recent comments indicating a preference for having a bias towards a wait-and-see approach to monetary policy. This is, in some respects, forward guidance on what happens after the currently priced-in Fed rate hikes have been implemented. As a result, the upward pressure has eased on the dollar and it is now, in our view, time to look again at EM equities. Emerging equities have underperformed so far this year but consensus forecast earnings growth both this year and in 2019 is well above developed market peers. Furthermore, valuations for EMs, while not inexpensive, are no higher than historical averages compared to relatively expensive developed markets. It is early days, but the apparently improved US trade relations with NAFTA members and the EU is also likely to lead to improved growth sentiment, if sustained. For bonds, a more dovish Fed may create upward pressure on US 10-year bond yields, steepening the yield curve. We believe US 10-year yields remain too low at under 3%.
Sector report cover
*Multiple Sectors

26/07/2018
Equity strategy and market outlook - July 2018
Download via: Website

In this month’s strategy piece, Alastair George believes that global equity markets remain in a period of consolidation while US interest policy is normalised even as corporate performance remains strong. Furthermore, US bond yields still appear too low given the prospect of increased issuance, a reduction in the Fed’s balance sheet and strong US growth. In respect of the US trade war, we believe the recent comments on monetary policy and announcement of additional subsidies for US agriculture underscore the resolve and political incentive for the current US administration to maintain a confrontational stance with respect to China despite the positive recent EU/US announcement. We remain cautiously positioned on equities.
Sector report cover
*Multiple Sectors

28/06/2018
Equity strategy and market outlook - June 2018
Download via: Website

In this month’s strategy piece, Alastair George believes that the US vs rest of the world trade confrontation is becoming the dominant narrative. We cannot rule out at this point that negative responses in financial markets may be a prerequisite to negotiating a face-saving route out of the situation for all sides. However, earnings estimates show few signs of the impact of tariffs or disappointing UK and eurozone economic data and robust growth for 2018 remains the consensus forecast. Profits forecasts have even risen in the US in recent months and the median US company is now expected to deliver close to 20% earnings growth in 2018. However, offsetting the benefits of strong US profits growth is the prospect of tighter US monetary policy and larger fiscal deficits. The recent trade protectionism-related flight to safety is understandable but in our view current US 10-year Treasury yields still appear too low. Emerging markets may continue to struggle as the Fed remains focused on US domestic condition. There is no change to our cautious outlook. We continue to believe developed equity markets are in a period of consolidation. Valuations are moving closer towards long-run averages with markets simply trading sideways as profits grow while monetary policy is normalised.
Sector report cover
*Multiple Sectors

31/05/2018
Equity strategy and market outlook - May 2018
Download via: Website

In this month’s strategy piece, Alastair George observes underperforming emerging markets, a strong dollar, rising volatility and a repricing of fundamental credit risk in Italian bond markets. He views these not as disparate narratives but suggestive that global risk premia are rising as US monetary policy is tightened. Political developments in Italy have reignited concerns over the sustainability of the euro project as the long march of populism in Italy has finally knocked on the door of government, only to be turned away. Italian political risk is likely to remain elevated for some months. Although there has been a notable weakening of economic momentum in Europe, consensus profits growth estimates remain stable. He believes that provided this remains the case, there is still the prospect of a benign de-rating of currently expensive equity markets as profits grow, with markets moving sideways in a volatile trading range. US foreign policy is inconsistent and remains a wildcard and the uncertainty remains at risk of affecting global business confidence. There is no change to his cautious outlook for equities.
Sector report cover
*Multiple Sectors

26/04/2018
Equity strategy and market outlook - April 2018
Download via: Website

In this month’s strategy piece, Alastair George believes that with output gaps closed future monetary and wage growth developments offer only headwinds, both for markets and levels of corporate profitability over coming quarters. Uncertainty in respect of US trade policy risks a chilling of corporate optimism, leading to a shortfall in business investment and short-term economic momentum even if the probability of an all-out trade war remains remote. After the modest falls from the market highs recorded in January, global equities remain expensive compared to historical valuation levels, according to our estimates. Record profit margins also face risks from developments in trade policy and tightening labour markets. With Fed policy clearly remaining on a tightening track, we stick with our cautious view on global equity markets.
Sector report cover
*Multiple Sectors

29/03/2018
Equity strategy and market outlook
Download via: Website

In this month’s strategy piece, Alastair George believes that it is very easy to point the finger at US trade sanctions against China as a reason for the recent declines in equity markets. The prospect of a confrontation in the near term, in respect of access to markets and IP protection, is clearly unhelpful for global equity sentiment. However, the second dynamic at work during Q118 is a rapid rise in US LIBOR. At the same time, the US technology sector has suffered as the furore over the political use of personal data collected via social media risks fines, regulations and a change in consumer preferences, even if the crisis need not be existential for the industry if skilfully handled. We are now seeing a trend of weaker economic data in Europe and unweighted 2018 earnings estimates have continued to fall during Q1, if modestly. The benefits of US tax reform and the tailwind of economic momentum of 2017 are now in the rear view mirror. US and European equity investors will have to contend with a slowing of economic momentum in Europe, high valuations and tightening US monetary policy, in addition to significant headline risk in respect of a “trade war” over the next quarter.
Sector report cover
*Multiple Sectors

22/02/2018
Equity strategy and market outlook
Download via: Website

In this month’s strategy piece, Alastair George highlights that the standout market event during February was the discontinuity in equity market volatility. In his view, renormalisation of monetary policy will over time have a much broader impact on asset prices. In particular, this volatility episode adds to the weight of evidence that market risk premia will also revert back to more normal levels as interest rates rise. There has, however, been no evidence in recent weeks that economic fundamentals are weakening. While recognising the growth dynamic is strong for the moment, he continues to believe equity portfolios should now be tilted towards sectors that have offered a degree of resilience. Bond yields may have risen substantially since he highlighted anomalously low yields in December, but on balance the risks still appear to the upside.
Sector report cover

25/01/2018
Equity strategy and market outlook
Download via: Website

In this month’s strategy piece, Alastair George believes that the first few weeks of trading in January have highlighted the themes for the remainder of 2018. Strong economic sentiment and earnings upgrades resulting from US tax reform initially pushed equity markets higher. However, the same factors are now pushing the entire yield curve upwards, creating competing demands for investors’ capital. We continue to believe that in the short term, the still-strong growth dynamic will have the upper hand and risk assets will continue to perform. Over the longer term, however, the re-normalisation of monetary policy may bring stretched equity valuations into sharper relief. For government bonds, yields still seem to be too low given current growth prospects, despite the recent increases, and we remain underweight.
Sector report cover

10/01/2018
Equity strategy and market outlook January 2018
Download via: Website

In this month’s strategy piece, Alastair George believes that 2018 is likely to be a year of two halves for global equity markets. Initially, strong economic momentum and investor sentiment is likely to prevail over the negatives of high valuations and continued monetary tightening. However, the delayed impact of tighter policy in 2017 and further tightening in 2018 appears to be a strong headwind to further equity performance from mid-year. He notes that output gaps in developed markets have now closed, in aggregate, for the first time since 2009. This is a structural change from the slack environment which persisted following the financial crisis of 2008-09 and investors should therefore consider sector allocations carefully. In his view, equity portfolios should now be tilted towards sectors which have offered a degree of resilience and a better risk/reward in the past. Specific growth or event-driven situations should also be favoured over broad market exposure, as developed market price/book valuations as a whole remain unappealing.
Sector report cover
*Multiple Sectors

30/11/2017
Equity strategy and market outlook November 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that, in hindsight, we have been over-cautious in our strategic views during 2017 as equity market performance has been strong, despite the starting point of extended valuation multiples and progressively tighter monetary policy in the US at least. However, even a cautious strategy would have generated returns significantly above cash during the year. While we take no view on the outlook for the bitcoin price due to its speculative nature, we do see the coalescing of a significant amount of capital and infrastructure around blockchain technologies as a very important development. There are potentially disruptive implications for the conventional finance sector over the medium term as there is now an established network effect within the digital finance community. For the traditional finance industry, the risk is that the genie is already out of the bottle. There is no change to our strategic view as we continue to believe a cautious outlook is warranted for developed markets on the basis of valuations. However, recent economic surprise is increasingly positive and credit conditions are loose. Therefore a major fracture in markets in the near term remains unlikely in our view. We continue to believe that, as we may be late in the cycle, investors should combine a relatively modest level of market exposure with only carefully selected equities.
Sector report cover

26/10/2017
Equity strategy and market outlook October 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that 2018 brings into view the prospect of a net decrease in central banks’ balance sheets, and that the winding down of policies that were statistically shown to depress risk premia in fixed income and credit markets should not be ignored. The US Fed has offered ample guidance in terms of balance sheet reduction, but the surprise may be on the other side of the Atlantic as economic activity has rebounded strongly in the eurozone, yet interest rates remain negative and the ECB risks getting behind the curve. During 2017, markets have pushed further into their low-volatility/low-return regime. Volatility has declined faster and further than at any time since the 1970s. We view this as a temporary phenomenon likely to reverse as volatility returns to interest rate markets during 2018. We maintain a cautious outlook for the medium term on the basis of valuations that indicate very low expected returns in both equities and credit in developed markets. To deliver returns, active investors may need to combine a relatively modest level of market exposure with carefully selected exposure to specific company- or event-driven situations.
Sector report cover

21/09/2017
Equity strategy and market outlook September 2017
Download via: Website

In this month’s strategy piece, Alastair George believes resilient forecasts for profits growth in 2017 keep the equity bears at bay in the short term. Though a modest degree of weakness in consensus earnings forecasts has appeared recently, earnings growth for developed markets is still forecast to be close to 10% in 2017. However, valuations across credit and equity markets highlight the need for caution for the medium term. Risk premia remain, in our view, compressed by central bank policy and are at levels that are unusually low on a historical basis. For the euro, it is perhaps a Goldilocks era as the strength of the currency taps the brakes on exporting nations, allowing other eurozone members, where there is less inflationary pressure, to remain beneficiaries of ultra-loose monetary policy for longer. We expect the ECB to aim to maintain the euro close to current levels. We continue to believe portfolios should be cautiously positioned.
Sector report cover

31/08/2017
Equity strategy and market outlook August 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that the record levels of corporate profitability observed since the financial crisis are the key drivers behind currently high equity valuations. At the same time, the labour share of GDP has been declining as wage growth remains muted. In part, this profitability phenomenon is structural, due to factors such as globalisation and declining union power. Shorter-term cyclical factors such as high developed-market unemployment levels are also important. The benefits from structural factors are now largely in the rear-view mirror and furthermore US cyclical wage pressure appears to be on the increase. He therefore believes profit forecasts are unlikely to surprise to the upside and remains cautious on developed market equities.
Sector report cover

27/07/2017
Equity strategy and market outlook - July 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that good times to invest are when there are a multitude of ways to win and limited downside. At present, however, the bull case for equities seems to be increasingly based on a single ‘Goldilocks’ scenario contingent on the persistence of high equity valuations, easy monetary policy and low volatility. The path for even adequate returns on equities therefore seems rather narrow at present. This absence of upside, rather than any specific downside trigger is, in his view, sufficient reason to run portfolios at below benchmark risk levels.
Sector report cover

29/06/2017
Equity strategy and market outlook June 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that, judging by the market reaction to ECB President Draghi’s most recent comments, a tipping point may have been reached. Peak monetary accommodation is now in the rear-view mirror and investors are becoming increasingly worried about tightening policy. We believe this adds weight to our cautious view on global equities but investors should also consider that overly pessimistic forecasts for an aggressive quantitative tightening could ultimately prove wide of the mark. There is a distinction between headwinds and hurricanes and we do not believe policy error should be the base case at this stage.
Sector report cover

25/05/2017
Equity strategy and market outlook May 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that global equity markets are being supported by declining inflation expectations pushing bond yields lower and consensus forecast for profits growth of 10%, which have remained intact throughout this year. While this Goldilocks period for equities may continue, there is a mutual inconsistency in expecting both robust profits growth and ultra-low bond yields to persist in the medium term. Therefore, even if our base case is for markets to gradually drift higher in the short term, we continue to believe equity risk should be selective, focusing on specific catalysts or event-driven situations as the current low-volatility environment is likely to incentivise further M&A activity.
Sector report cover

28/04/2017
Equity strategy and market outlook - April 2017
Download via: Website

In this month’s strategy piece, Alastair George finds that equity valuations are above average across the UK and Europe, and exceptionally high in the US. The combination of high valuations and price momentum accelerating to the upside, but concentrated within a narrow range of digital stocks, is starting to feel like the ‘financial instability’ the US Fed has been keen to avoid. He remains cautious and believes developed market equity valuations appear to price in a sustained period of strong economic growth, which is at odds with expectations in the bond market. However, an overvalued market does not exclude the possibility of attractive stock-specific or event-driven situations – which, in turn, are relevant to the debate that currently favours passive over active management.
Sector report cover

30/03/2017
Equity strategy and market outlook - March 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that it is time to move back to a cautious rather than outright bearish position on global equity markets as both the Fed rate increase this month and the evident difficulties of implementing Trump’s policy agenda were relatively easily absorbed by markets, suggesting a degree of support at current levels in the short term at least. Nevertheless, strong survey data and equity market prices remain at odds with much more modest improvements in hard economic data and earnings forecasts; he therefore remains cautious on equities for the medium term.
Sector report cover

23/02/2017
Equity strategy and market outlook - February 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that little has changed in the global outlook during the past month and we remain cautious on equities, primarily based on valuation concerns. Earnings estimates do not thus far seem to be tracking the improvement in survey data leaving global market valuations at the upper end of historical ranges. We believe the recent surge in French sovereign risk relative to Germany highlights the imbalances at the core of the eurozone, which has this time manifested in a striking divergence of French and German macroeconomic performance post-2008. We would suggest the euro is not yet out of the woods.
Sector report cover

26/01/2017
Equity strategy and market outlook - January 2017
Download via: Website

In this month’s strategy piece, Alastair George believes that even as headlines trumpet the arrival of Dow 20k, we are becoming increasingly concerned that the conditions for a sudden shift lower in equity markets are in place. The combination of high valuations on a global basis and the prospect of tighter US monetary policy in 2017 is sufficient reason to be cautious and a stronger dollar is unhelpful for risk assets. However, it is political uncertainty which is giving us pause for thought. Investors’ high degree of confidence in Trump’s growth- and US-friendly policies contrasts with the willingness to downplay the more worrisome components of Trump’s policy package, which lean strongly towards protectionism and a go-it-alone US foreign policy.
Sector report cover

15/12/2016
Equity strategy and market outlook - December 2016
Download via: Website

In this month’s strategy piece, Alastair George writes that as there have been few changes in the investment outlook since our last update in this final note for 2016 he has reviewed our calls for the year. This is an important exercise for discovering any potential bias in our strategy forecasts. We are pleased to discover that the hits clearly outnumber the misses although the timing of our ‘buy’ ideas were much better than our ‘sells’ and the bias towards caution was unhelpful this year. For 2017, Alastair continues to believe US government bond yields are on a rising trajectory and maintains a cautious view on global equities, primarily on valuation concerns. Furthermore, a rising US dollar is likely to be negative for emerging markets and corporate profits forecasts globally. A period of underperformance for global equities cannot be ruled out for Q117, or at least until the uncertainty in respect of the interaction between US monetary and fiscal policy has been resolved.
Sector report cover

24/11/2016
Equity strategy and market outlook - November 2016
Download via: Website

In this month’s strategy piece, Alastair George believes that Trump has surprised markets twice over, first with a Presidential victory and second a rally in risk assets. Alastair views this rally as largely due to investor positioning as nothing new has emerged from the Trump camp since the election. Investors should however continue to focus on valuations and the direction of monetary policy, even as he asks the question whether “Make America Great Again” could be compared to Draghi’s “whatever it takes” OMT announcement. A key difference is that in 2012 many asset markets in Europe were trading at distressed levels and this is not the case in the US in 2016. Therefore, while in some regards there may be a parallel, he does not change his cautious positioning on equities.
Sector report cover

27/10/2016
Equity strategy and market outlook - October 2016
Download via: Website

In this month’s strategy piece, Alastair George believes that in an environment of increasing political turbulence, markets have sought comfort in relatively stable earnings estimates. He believes longer-term investors should consider trading earnings revisions to their advantage and overweight exposures to commodities, commodity equities and energy are no longer contrarian and should be reduced. In currency markets, the decline in sterling is much less surprising in the context of its significant prior overvaluation; Brexit has merely acted as a catalyst. Sterling is likely to remain volatile and relatively weak for some time, but current levels now reflect the known Brexit risks. He also believes investors should be screening for UK companies which are likely to benefit from weaker sterling with share prices that have underperformed international peers.
Sector report cover

30/09/2016
Equity strategy and market outlook - September 2016
Download via: Website

In this month’s strategy piece, Alastair George believes central bank influence may have reached its high watermark and the tide is now turning towards fiscal policy. While supportive of GDP growth, investors who have become conditioned to riding the waves of monetary stimulus in recent years should not necessarily assume such a switch in policy focus will be positive for asset prices. With bond yields at record lows and equity valuations near the top of historical ranges following the strong rally in 2016 to date, he believes investors should now be looking to lower exposure to both asset classes and increase allocations to lower risk investments and cash.
Sector report cover

25/08/2016
Equity strategy and market outlook - August 2016
Download via: Website

In this month’s piece, Alastair George believes that over the last six months, markets have been driven higher by easier than expected monetary policy in the US and UK. In the UK at least the anticipated economic slowdown has so far failed to materialise, leading to a short-term win-win for equity investors. Therefore, despite very high valuations, with global earnings estimates being revised upwards equity markets are likely to remain buoyant. However, looking towards 2017 and as central banks question the benefits of negative interest rates and the focus turns to fiscal policy, Alastair believes investors may wish to start taking take profits in government bonds. Having enjoyed the relief rally, he also believes equity investors should maintain discipline and look to take profits on positions in overvalued sectors which may represent bond proxies.
Sector report cover

28/07/2016
Equity strategy and market outlook - July 2016
Download via: Website

In this month’s piece, Alastair George believes that the worst fears over Brexit have failed to materialise and clearly we are not currently looking at a self-reinforcing cycle of declining UK markets, expectations and investment nor systemic implications for the rest of the world. However, he believes the very negative UK survey data cannot be entirely dismissed and close attention should be paid to the evolution of these data series over the summer. Following the rebound in market prices, median UK equity valuations remain expensive in aggregate and growth prospects for sales and profits remain weak. He believes investors’ portfolios should remain cautiously positioned.
Sector report cover

04/07/2016
Equity strategy and market outlook - June 2016
Download via: Website

In this month’s strategy piece, Alastair George believes that the UK’s vote to leave the EU has created a political crisis and a significant degree of economic uncertainty. However, mutually assured economic destruction between the EU and UK will only be a negotiating tactic and not a strategy in his view. The uncertainty is likely to slow the UK economy and once again he believes investors are rather too ready to look through slowing fundamentals and are focused only on the direction of monetary policy. In this respect bonds may have be headed in the right direction but he remains cautious on equities.
Sector report cover

26/05/2016
Equity strategy and market outlook - May 2016
Download via: Website

In this month’s strategy piece Alastair George believes that the combination of slow growth and high valuations is pointing to a period of low returns for US, UK and European equities over the medium term. The latter years of the 20th century appear to have been an exceptional period for equities where buy and hold or “time in the market” strategies may have fitted the then prevailing investment parameters but seem less applicable now. Separately, the most recent Fed minutes highlight that a June rate increase is clearly a possibility, absent a repeat of the market volatility seen in Q116. Earnings forecasts may have stabilised but show little sign of upward momentum, which in our view is a necessary condition for any further sustained increases in market indices.
Sector report cover

28/04/2016
Equity strategy and market outlook - April 2016
Download via: Website

In this month’s strategy piece, Alastair George believes the risk of an actual Brexit is modest as polls indicate the “Remain” campaign is still on target to win the vote. However, the uncertainty surrounding Brexit may be opening up a relative valuation anomaly, as the combination of the decline in sterling and the underperformance of the UK market leaves export-led UK industrials at a significant discount to US peers. With growth expectations similar for both indices, UK investors should stay aware of the potential for M&A, despite relatively low levels of activity during 2016 to date. Separately, we remain of the view the relief rally which started in February is largely behind us. Oil prices have risen to levels more consistent with long-run marginal supply and commodity prices look to have run ahead of improvements in the economic data. With the reduction in financial market volatility, we also believe the US Fed is on course for a rate increase in June.
Sector report cover

24/03/2016
Equity strategy and market outlook - March 2016
Download via: Website

In this month’s strategy piece, Alastair George believes volatility has declined as central banks have taken policy divergence and European bank credit stress risks off the table. However, it is still too early to call an upturn in corporate profits forecasts. Though the rate of decline may have slowed, we still have to date insufficient evidence of an upturn in corporate profits – which is key for markets to move significantly above current levels. He expects global equity markets to be range-bound during April as the next incremental shift in US monetary policy is likely to be hawkish. In addition, the recovery in commodity prices has been rapid and progress is likely to be slower from here.
Sector report cover

25/02/2016
Equity strategy and market outlook - February 2016
Download via: Website

In this month’s strategy piece, Alastair George believes that the recent bank sector mini-panic has been counter-intuitively embraced by investors as a positive event, by arm-twisting central banks into providing more monetary stimulus. He believes the economic outlook remains uncertain but also that at least in the US and UK, earnings estimates have stopped falling for the first time in a year. He highlights the early-stage talks amongst oil producers and the impact on the bank sector of negative interest rates, questioning the likely benefits of the latter. Investors should in his view not over-react to Brexit which is largely a political event and instead remain focused on equity valuations and the economic outlook. Globally, high yield bonds have fallen to levels which appear to discount many adverse economic scenarios (with the exception of a full-blown financial crisis), unlike global equities where valuations remain extended and where he therefore remains cautious.
Sector report cover

28/01/2016
Equity strategy and market outlook - January 2016
Download via: Website

In this month’s strategy piece, Alastair George highlights that in 2016 markets have moved fast but insufficiently far for us to change our cautious strategic view (much as we would like to!). As we expected, the yield curve has flattened to correctly reflect a slowing pace of economic activity. Equity markets have fallen, but they have not de-rated and do not offer sufficient value to be immune to further downgrades. To become more positive on equities we would need to see still lower valuations or have increased confidence that the US dollar has peaked, in addition to some evidence that the pace of earnings downgrades has slowed.
Sector report cover

17/12/2015
Equity strategy and market outlook - December 2015
Download via: Website

In this month’s strategy piece, Alastair George highlights that although the Fed has only just raised rates, financial conditions have been getting tougher for some time as investors re-price credit and emerging market risks. While this was always going to be a very gradual tightening of US interest rates, recent market events already highlight the possibility of a pause in Fed rate increases – or even a reversal – during 2016.
Sector report cover

26/11/2015
Equity strategy and market outlook - November 2015
Download via: Website

In this month’s strategy piece, Alastair George highlights the remarkably slow pace of revenue growth in developed markets compared to the pre-2008 period. With profit margins high and dividend cover already close to cycle lows, the outlook for dividend growth is inconsistent with still high equity market valuations. Slowing dividend growth cuts into the heart of the argument for substituting equities in place of low-yielding debt and, in our view, is the biggest threat to long-term equity performance. While desirous of becoming more positive on the outlook for 2016, we are not desirous of losing money. Therefore, we remain cautious on developed market equity indices based on our growth and valuation concerns. In 2016, we believe investors will have to stay focused on company-specific ideas rather than relying on market gains to drive portfolio performance.
Sector report cover

29/10/2015
Equity strategy and market outlook - October 2015
Download via: Website

In this month’s strategy piece, Alastair George believes that incoming data during October continues to indicate that global economic and profits momentum is slowing, yet markets have rebounded strongly from the lows of September. Given the strong hints that the ECB will be loosening monetary policy further in December, yesterday’s hawkish FOMC statement strikes a somewhat discordant note in this risk-on period for the markets. The initially positive US equity market reaction to the statement may well prove unsustainable. To us, subject to stable market conditions, the Fed appears much less dovish than we thought one month ago. While the looser-for-longer global monetary policy outlook may have been a reason to hold off from panicking out of equities during August, it is not at all clear that October’s mini rally will run much further without implicit encouragement from the US Fed.
Sector report cover

24/09/2015
Equity strategy and market outlook - September 2015
Download via: Website

In this month’s strategy piece, Alastair George believes that the initially positive reception to the US Federal Reserve’s decision to defer a US rate increase has given way to investors’ increasing doubts over global growth. We believe equity markets will continue to be volatile and cannot exclude the possibility of further declines unless the US Fed drops a strong hint that further QE is a possibility for 2016. The growth slowdown is spreading to the US and a variety of US economic data are highlighting a loss of US economic momentum. In our view, investors should avoid the mistake of believing developed markets can ‘decouple’ in a highly interconnected global financial system. We have however become more positive on high-quality government bonds where yields now look more sustainable at current levels given the economic uncertainty.
Sector report cover

27/08/2015
Equity strategy and market outlook - August 2015
Download via: Website

In this month’s strategy piece, Alastair George has characterised the recent market declines as a long overdue correction that brings valuations closer to long-run averages, triggered by volatility in China’s markets and declining global growth expectations. Unless there is a forceful response from the US Federal Reserve, which we believe is unlikely in the short run, markets are therefore unlikely to stage a sharp recovery to earlier levels. We note that our universe of European large-cap growth stocks remains at a significant premium to long-run valuation levels. However, perhaps unsurprisingly, the basic materials sector is now trading at a significant discount. Investors prepared for the long haul may wish to consider lower-cost operators with balance sheets able to ride out a cycle.
Sector report cover

30/07/2015
Equity strategy and market outlook - July 2015
Download via: Website

In this month’s strategy piece, Alastair George sees few reasons at present to become more positive on global equities. In the last few weeks Greece may have been the primary source of ‘headline’ risk, but in our view recent equity declines have been driven by several other factors such as a collapsing equity bubble in China and sharply declining commodity prices. Subtle changes in July’s FOMC statement compared to June suggest the day US interest rates ‘lift off’ is drawing closer and, combined with still high equity valuations, this points to a challenging investment outlook.
Sector report cover

25/06/2015
Equity strategy and market outlook - June 2015
Download via: Website

In this month’s strategy piece, Alastair George believes markets jumped to the conclusion that Greece was a done deal, only to find that the two sides remain as far apart as ever, despite the high-level desire to get a deal done. In the US, lowered growth and interest rate forecasts from the FOMC confirm our view that US rate increases during 2015 will be too slow to power a market-unfriendly rise in the US dollar. We continue to believe equity markets are very highly valued, having reviewed 450 faster-growing companies in Europe, and see US and UK bond yields drifting higher with rising headline and wage inflation into H215.
Sector report cover

28/05/2015
Equity strategy and market outlook - May 2015
Download via: Website

In this month’s strategy piece, Alastair George can see no compelling reasons at present for US and European equities to trade significantly above or below current levels in the short-term. The positive economic surprise in Europe during H115 may have driven the reflation trade which pushed energy prices, equity markets and bond yields higher but expectations have now caught up. Embracing exposure to Russia when valuations were discounted early in the year has proved profitable, as has underweight positions in European government bonds. We believe the key risk for investors is US economic growth as economic data continues to disappoint.
Sector report cover

30/04/2015
Equity strategy and market outlook - April 2015
Download via: Website

In this month’s strategy piece, Alastair George believes that the recent weakness in the US economy may benefit emerging market equities as the US dollar rally stalls and the Fed stays on hold for longer. On the basis of relative valuations it may now be time to take profits in European and US equities and increase weightings in emerging markets, even if on an absolute basis emerging market valuations are only in line with long-term averages. Our cautious portfolio strategy outlook is retained on the basis of very high valuations across developed market equities. In addition, we believe bond yields in the core of Europe have declined to levels that represent an attractive exit opportunity.
Sector report cover

26/03/2015
Equity strategy and market outlook - March 2015
Download via: Website

In this month’s strategy piece, Alastair George highlights the divergence in economic prospects between a slowing US and accelerating eurozone during Q115. This divergence is also clearly evident in profit forecasts and year-to-date relative equity performance. However, investors should still be mindful of valuations; German non-financials now trade at multiples of book value that have not proved sustainable in the past. Value is still difficult to find in equity markets, but the mining and energy sectors are two of the few that remain cheap in a historical context. However, in general the pain the active investment management community feels with valuations stretched but prices still rising is palpable. We believe the appropriate response to aggressive and experimental central bank policy is caution and investment discipline, even if it is only when the monetary tide goes out that the benefits of such a strategy become clearer.
Sector report cover

26/02/2015
Equity strategy and market outlook - February 2015
Download via: Website

In this month’s strategy piece, Alastair George believes that while the pace may be glacial, we believe the US Fed will embark on the long process of returning US monetary policy to a neutral stance in the second half of the year. US unemployment continues to decline, wage growth is improving and the one-off impact of the decline in the oil price will fall out of the annualised inflation rate by Q315. Equity valuations in each of the US, UK and eurozone remain at high levels. The correlation between medium-term equity returns and valuation measures is relatively strong and as US monetary policy normalises we believe valuation will become an increasingly relevant factor for markets.
Sector report cover

29/01/2015
Equity strategy and market outlook - January 2015
Download via: Website

In this month’s strategy piece, Alastair George believes that the ECB’s QE programme is a necessary policy to avoid an undesirable increase in real yields across the eurozone. We currently see some scope for positive economic surprises in Europe in H115, following the recent decline in bond yields, the euro and the oil price and based on recent earnings trends. In turn, there is an increased likelihood of European equities outperforming US peers over H115, even if our medium-term concerns on Europe remain in place. Events in Greece show that political risks remain highly relevant. We maintain a cautious strategic positioning, but are warming to the energy sector and believe that in a negative interest rate environment gold will continue to find favour as a store of value. But the key question remains – what would happen to asset prices if investors lost confidence in the effectiveness of unconventional monetary policy?
Sector report cover

18/12/2014
Equity strategy and market outlook - December 2014
Download via: Website

In this month’s strategy piece, Alastair George believes that even as European equities return to their lows for 2014 there is no buying opportunity with valuations still substantially above long-run averages. In addition, high-quality government bond yields are now effectively pricing in the failure of central banks to achieve their inflation targets. For professional portfolio managers, holding cash can be an uncomfortable proposition. However, unless the US Federal Reserve is prepared to keep monetary policy looser than warranted by US domestic conditions to ward off potential external risks, continued global volatility is likely to lie ahead.
Sector report cover

28/11/2014
Equity strategy and market outlook - November 2014
Download via: Website

In this month’s strategy piece, Alastair George believes that investors have become increasingly reliant on central banks to drive asset prices as valuations have become stretched and corporate revenue growth has slowed during the post-2008 period, reflecting the sluggish performance of global GDP. For 2015, investors would already appear to be looking forward to further ECB action and we recognise this is likely to be supportive for equity markets in the short run. However, the valuation signals cannot be ignored; the possibility of central bank intervention is the only reason we are cautiously positioned rather than more negative. In Europe increasing political risk should be on investors’ agendas. In bonds, yields have declined sharply since the start of the year and are now at levels that are inconsistent with policymakers' objectives for inflation or growth. While bonds may still have some utility as a hedge against a significant economic slowdown, strong performance this year is likely to lead to only modest returns in most other scenarios.
Sector report cover

30/10/2014
Edison strategy and market outlook - October 2014
Download via: Website

In this month’s strategy piece, Alastair George believes that the so-called great rotation that was forecast to be the theme for 2014 has not happened, as sovereign bonds have outperformed equities year to date. We cannot ignore slowing economic momentum, high-profile profit warnings and slow aggregate corporate revenue growth and believe that global equities will continue to tread water while the fundamental outlook remains uncertain.
Sector report cover

25/09/2014
Equity strategy and market outlook - September 2014
Download via: Website

In this month’s strategy piece, Alastair George believes there are few reasons to change our cautious outlook for equities in the face of high valuations, slow global corporate revenue growth and tighter US monetary policy. For as long as the ECB continues to explore ways of loosening monetary policy further and the US Fed remains on a tightening track, the dollar is likely to face upward pressure against the euro. While the relatively highly valued nature of global equity markets may be a consensus view, investors should also keep in mind the sharp decline in forecast revenue growth rates, which is a global phenomenon. We believe portfolios should remain cautiously positioned and skewed to larger-cap equities with event or restructuring potential.
Sector report cover

01/09/2014
Equity strategy and market outlook - August 2014
Download via: Website

In this month’s strategy piece, Alastair George retains a cautious investment outlook. While central banks are in uncharted territory, having engaged in numerous experimental and extreme monetary policies in recent years, investors are under no compulsion to conduct similarly aggressive experiments with their portfolios. Global equity valuations remain above historical averages and we have seen no convincing reasoning for a permanently high plateau in market multiples. Within equities, we believe investors should continue to focus on large-cap and M&A-related investment ideas. Absent a significant crisis, the strong performance of government bonds year to date leaves less scope for upside and we would now be reducing overweight positions
Sector report cover

29/07/2014
Illumination: Equity strategy and market outlook
Download via: Website

In this month’s strategy piece, Alastair George believes that with global equity valuations either above or some distance above historical averages, it would be counterintuitive to be recommending overweight positions, given the lack of forecast growth in corporate revenues and profits. Within equities, we believe investors should focus on large-cap and M&A-focused investment ideas. Despite recent declines, mid-cap valuations have not fallen sufficiently to justify changing tack on this segment of the market. We are now cautious on corporate credit, with credit spreads as narrow as at any time in the last 15 years. In our view, UK and US government bond yields are close to the bottom of their fair value range, in the context of a likely peak in interest rates of 2.5-3% over this cycle.
Sector report cover

26/06/2014
Equity strategy and market outlook - June 2014
Download via: Website

In this month’s strategy piece, Alastair George believes that a cautious strategy has been the right call for H114 and sees no reason to adjust our view for H2. Gains in global equities have been modest year to date. The underperformance of mid-caps compared to large caps is also notable. US and UK equity market valuations remain relatively high and there has been little improvement in the growth outlook for profits. Our large-cap and M&A-focused investment strategy would have performed well so far this year. Despite recent declines, mid-cap valuations have not fallen sufficiently to justify changing tack. We are now cautious on corporate credit with credit spreads as narrow as at any time in the last 15 years, but view UK and US government bonds as fairly valued in the context of a likely peak in interest rates of only 2.5-3% during this cycle.
Sector report cover

29/05/2014
Equity strategy and market outlook - May 2014
Download via: Website

In this month's strategy piece, Alastair George notes that since Q412, global measures of asset class volatility have steadily fallen to levels not seen since 2007. This lowering of volatility has increased willingness by investors to seek out ever riskier securities to maintain returns in a global search for yield. However, a very traditional interest rate tightening cycle is clearly in view in the US and UK, which could easily be the trigger for a renormalisation of market volatility and risk premia. We continue to favour large cap equities over mid-caps and would also consider taking profits on corporate bonds as spreads have narrowed.
Sector report cover

30/04/2014
Equity strategy and market outlook - April 2014
Download via: Website

In this month's strategy piece, Alastair George's favourite asset class remains large-cap equities. A revival in M&A has driven large-cap outperformance in recent weeks by highlighting the latent value in this market segment. If, as we suspect, we are close to the top of the market cycle investors should consider tilting equity portfolios towards companies with M&A or restructuring potential to benefit from an increase in deal volumes. However, overall portfolio positioning remains cautious and we must also highlight a significant decline in forecast revenue growth post-2008 in the non-financial sector, which given current valuations at least some investors appear to be ignoring.
Sector report cover

27/03/2014
Equity strategy and market outlook - March 2014
Download via: Website

In this month's strategy piece, Alastair George believes a modest tightening in the monetary outlook, a richly valued equity market and the emergence of new risks keep us cautiously positioned. Our valuation models show forecast returns have dropped significantly in the last two years as improvements in fundamentals have failed to keep pace with rising equity prices. Events in the Ukraine are not yet systemic. We believe the increased risk premium for Russian assets is appropriate, but also see some medium-term benefits for the European defence sector.
Sector report cover

27/02/2014
Equity strategy and market outlook - February 2014
Download via: Website

In this month's strategy piece, Alastair George is still cautious and favouring large-cap equities. We believe investors have to look much harder for value at present. At this point in the cycle, investors should also consider emphasising securities whose return potential is highly company specific rather than reliant on macro factors. In bonds, highly rated government yields are now a little under our target of 3% and corporate credit spreads remain very tight in a historical context.
Sector report cover

30/01/2014
Equity strategy and market outlook - January 2014
Download via: Website

In this month's strategy piece, Alastair George believes the recent market declines are a gentle reminder that equity markets do not necessarily move in the same direction as economic momentum, especially when valuations are extended. If we have passed the point of 'peak' monetary accommodation, there is every possibility that equities have already entered a soft patch, and we note that the FTSE 100 has only moved sideways in the last eight months. In the face of even a gradual tightening of monetary conditions, the global re-rating of 2013 can only be sustained if the corporate sector can deliver profits upgrades to match the recovery in economic confidence.
Sector report cover

20/12/2013
Equity strategy and market outlook - December 2013
Download via: Website

In this month's strategy piece, Alastair George believes there has been a complete cycle in terms of investment strategy during the last two years. In 2011, equities discounted all but the worst scenarios for the eurozone, while highly rated government bonds at that time were offering negative real yields and were therefore expensive. During the last two years, the relative valuations of each asset class have turned 180 degrees and we believe portfolio managers should consider shifting allocations accordingly.
Sector report cover

29/11/2013
Equity strategy and market outlook - November 2013
Download via: Website

In this month's strategy piece, Alastair George believes that the urge to speculate can be strong in trending markets. Investors are prone to cloaking speculative behaviour in the language of investment, which can lead to big mistakes. We remain cautious on equities, but are warming to US and UK bonds, especially as they edge nearer yields of 3%, which would discount some of the technical effects of QE tapering. Real yields on bonds are now at levels consistent with the 2000-08 period and would offer diversification benefits in the event of a valuation-induced correction in equity markets.
Sector report cover

30/09/2013
Equity strategy and market outlook - September 2013
Download via: Website

In this month’s strategy piece, Alastair George believes the US Fed is clearly concerned that rising credit costs could choke US growth and therefore delay QE tapering. Slower growth and more QE are clearly beneficial to global bond markets. However, for global equities these factors are offsetting and there is no change to our cautious view on developed markets. Where to look for value? Our suggestion of adding emerging market exposure has quickly paid off and the gains may be less rapid from here. With little premium being paid for liquidity, we would focus on largest capitalisation companies that still trade at acceptable valuations in a historical context.
Sector report cover

02/09/2013
Equity strategy and market outlook - August 2013
Download via: Website

In this month’s strategy piece, Alastair George believes that in recent years a number of high-impact and widely discussed risks have failed to materialise. In response, judging by developed market equity valuations, investors now fear little. This is not the same as having little to fear. In our view, investors should now be taking a much closer look at the equally important investment risks of growth and valuation. Economic growth in developed markets remains weak in a historical context, and more importantly, both the US and UK equity markets look extended on traditional valuation parameters. By contrast, emerging market equities are now attractively valued based on dividend yields and compared to 10-year average earnings.
Sector report cover

29/07/2013
Equity strategy and market outlook - July 2013
Download via: Website

In this month’s strategy piece, Alastair George believes that a coordinated shift in emphasis from QE towards forward guidance by the US Federal Reserve, ECB and perhaps Bank of England marks a new phase in post-crisis monetary policy. Investors should position themselves for a shift to forward guidance from QE. While interest rates are very likely to remain low for the foreseeable future, the speculative element – in terms of further QE in both equity and credit markets - is likely to ebb. Equity valuations continue to march higher and we remain cautiously positioned in this asset class.
Sector report cover

01/07/2013
Equity strategy and market outlook - June 2013
Download via: Website

In this month’s strategy piece, Alastair George comments that world equity markets have only given back year-to-date gains so far and with profits forecasts still stagnant, we see little reason to get overexcited by current valuations. In credit, the recent increase in government bond yields, combined with widening credit spreads, leave corporate debt at significantly higher yields than a few months ago, and here we are more positive. Based on Japan’s experience and provided interest rates remain low, the US yield curve appears to have over-steepened in the short term.
Sector report cover

03/06/2013
Equity strategy and market outlook - May 2013
Download via: Website

In this month’s strategy, Alastair George believes the obvious hole in the portfolio for the long-only manager is the ultra-low yield from fixed income. Tempting as it may be to replace coupon income with dividend income by increasing exposure to quality equities, we believe valuations indicate this tactic may be at least partly played out. In our view, the better strategy in the current environment is to forego the modest pick-up in yield from ‘equity-for-debt substitution’ and stick with cash or near-cash until either bond yields rise to match the equity view of world growth, or equities fall to match the view of the bond market.
Sector report cover

29/04/2013
Equity strategy and market outlook - April 2013
Download via: Website

In this month’s strategy piece, Alastair George believes central bank policy has been attempting to re-light the private sector engine of economic growth while maintaining the same rate of climb. Now the initial boost from Q4’s QE is fading, global economic growth is once again close to stall speed. Across the globe economic data has undershot expectations – in the US, Europe, the UK and China. The common theme in earnings reports is the difficult economic environment and 12-month forward sales estimates for non-financials have stagnated since mid-2012 in every major global region. In contrast, equity markets have remained firmly bid despite mounting evidence of a slowdown. At the asset allocation level, we remain cautious (not bearish) on equities and have not changed our positive view on gold despite the recent correction.
Sector report cover

09/04/2013
Equity strategy and market outlook - March 2013
Download via: Website

In March’s strategy piece, Alastair George argues that investors should be cautiously positioned as a growth slowdown in the UK and Europe puts earnings estimates at increased risk. In addition, the impact of Cyprus may yet prove to be out of proportion to its actual size. Within a cautious overall equity outlook we continue to recommend quality companies with leading market positions, strong balance sheets and global exposures. An allocation to gold remains a valid hedge against future inflation and/or currency devaluation.
Sector report cover

27/02/2013
Equity strategy and market outlook - February 2013
Download via: Website

In this month’s strategy piece, Alastair George believes the risks are rising as economic and earnings forecasts fail to keep up with increases in equity markets. Even cautiously positioned portfolios would have delivered strong returns and he would still be looking to take profits on positions that have outperformed and particularly in mid-caps.
Sector report cover

20/12/2012
Equity strategy and market outlook - December 2012
Download via: Website

In this month’s strategy piece, Alastair George believes now is not the time to be positioning portfolios aggressively. Although markets have been rising on improving survey data, random short-term fluctuations in economic activity should not be confused with a return to structural growth, especially when the structural problems clearly remain in place. Fixed-income markets remain unattractive even if yields are likely to be held at low levels by central bank purchases. A diverse portfolio including cash, gold and high-quality equities is likely to yield more and provide better purchasing power protection over the medium term.
Sector report cover

30/11/2012
Equity strategy and market outlook - November 2012
Download via: Website

In this month’s strategy piece, Alastair George examines the evidence for a structural break in economic growth. Despite unconventional monetary policy and significant support from fiscal deficits, developed market growth post-2008 has disappointed. Although an uptick in recent survey data has created a bounce in the equity market, significant political challenges lie ahead in both Europe and the US. He believes investors should stay long cash and gold and blue-chip equities, while avoiding highly rated government bonds.
Sector report cover

26/10/2012
Equity strategy and market outlook - October 2012
Download via: Website

In this month’s strategy piece, Alastair George asks the question – is the eurozone crisis over? Both equity and credit markets are now at levels not seen since the start of the European sovereign debt crisis. Since highlighting the value opportunity in both January and May of this year, we continue to believe investors should consider carefully where they could be taking profits.
Sector report cover

01/10/2012
Equity strategy and market outlook - September 2012
Download via: Website

In this month’s strategy piece, Alastair George explains his view that flexibility to respond to events, which means having ample cash on hand, will prove beneficial to investors as there is a much higher degree of uncertainty in the economic outlook than usual. This is driven by the uncertain interaction of slowing economic activity and substantial additional monetary stimuli. While attractive in the medium term, European equity valuations are not nearly as compelling as they were in June and investors should continue to take profits.
Sector report cover

17/08/2012
Equity strategy and market outlook - August 2012
Download via: Website

This month, Alastair George outlines his belief that investors’ confidence has returned and it is time to take risk off. We feel the prospects for further monetary easing are now embedded in the price of equities. This leaves risks skewed to the downside if QE expectations fail to be matched by actual policy action or growth slows more than expected.
Sector report cover

25/07/2012
Equity strategy and market outlook - July 2012
Download via: Website

In this latest strategy, Alastair George outlines his belief that markets are efficiently discounting both declining economic growth prospects and the prospect of QE3 in the US. Sectors that are exposed to the periphery of Europe or commodity prices have underperformed. From a strategic perspective we continue to avoid the periphery of Europe, banks and basic resources. We favour equities over bonds and in particular dividend paying companies with quality franchises and balance sheets.
Sector report cover

21/06/2012
Equity strategy and market outlook - June 2012
Download via: Website

In this month’s edition, Alastair George notes the EU policy of subordination of private sector creditors is accelerating the capital flight from the periphery of Europe. Separately, policymakers have noted the slowdown in global economic activity and a drip-feed of monetary stimulus is likely to support markets in the short term. For the longer-term investor, the current gap between the dividend yield on UK equities and the gilt yield is almost the opposite of 2000. We believe the medium-term implied depreciation of equities is far too bearish given current valuations and continue to prefer quality, non-bank equities over bonds.
Sector report cover

28/05/2012
Equity strategy and market outlook - May 2012
Download via: Website

In this month’s strategy, Alastair George believes the pain of austerity is triggering political change and adding to uncertainty. Investors have not yet been given any clear opportunities to invest as higher-quality equities have proved resilient in the most recent market downturn. In the short term, markets are likely to remain balanced between weakening growth prospects and the likelihood of further monetary stimulus in the US and UK.
Sector report cover

24/04/2012
Equity strategy and market outlook - April 2012
Download via: Website

In this month’s strategy, Alastair George explains his view that capital flight in Spain is now too big to ignore and portfolio risk should be reduced. Recent European survey data has also disappointed. While the long-run case for European equities over bonds remains clear, increased volatility in the short term seems likely. Investors should reposition themselves so they can take advantage of market dislocations while the Spanish question is being resolved.
Sector report cover

29/03/2012
Equity strategy and market outlook - March 2012
Download via: Website

In this month’s strategy, Alastair George explains how he believes a US cyclical recovery is gaining strength while European equity valuations remain modest and profit margins robust. Investors should be careful to ensure balance in their outlook as bearish commentary has become over-represented in the financial media. He thinks it is too early to take profits in equities.
Sector report cover

27/02/2012
Equity strategy and market outlook - February 2012
Download via: Website

Strategist Alastair George believes we are seeing a cycle within a cycle. Investors tend to ignore structural issues when sentiment turns and the resulting equity market rally can be powerful. Alastair believes it is not yet time to take profits although the gains from here are likely to be slower. Investors should also consider positioning themselves to benefit from a pick-up in M&A.
Sector report cover

13/01/2012
Equity strategy and market outlook - January 2012
Download via: Website

In this month’s strategy piece, Alastair George explains that large-cap ROE is being supported by stimulative monetary and fiscal policies, which will continue through 2012. At present, because of the undeniable economic uncertainty, European markets are trading at attractive levels. But he cautions that highly rated sovereign bonds are trading at very low real yields in a historical context.
Sector report cover

03/11/2011
Equity strategy and market outlook - November 2011
Download via: Website

In this month’s strategy piece, Alastair George cautions that although equities have risen sharply, credit markets have not improved since the EU summit announcement. The call for a referendum in Greece has only added to uncertainty. Questions are also surfacing on the sustainability of China’s growth model. The risks have not gone away and investors should remain focused on quality names.
Sector report cover

06/10/2011
Equity strategy and market outlook - October 2011
Download via: Website

Alastair George, Edison’s strategist, continues to see unusual levels of value in defensive and quality names. China’s monetary tightening has led to a sharp slowdown in its money supply and global commodity prices have fallen sharply. Though unwelcome for commodity investors, lower prices will help western consumer confidence and leave more room to ease monetary policy – US inflation expectations are close to levels that triggered the announcement of QE2 in 2010.
Sector report cover

02/09/2011
Equity strategy and market outlook - September 2011
Download via: Website

Alastair George, Edison’s strategist, believes the probability of recession has risen substantially and has therefore reviewed S&P performance during the last 29 US recessions. Provided valuations are conservative at the start, equity market returns are close to long-run averages during recessions. Credit stress in the banking system will ultimately be resolved by policymakers even if the timing is uncertain. In the meantime, with European equities in particular trading at very low multiples of price/book the focus should be on adding to positions in quality industrial names, for those investors who can accept the short-term volatility.
Sector report cover

05/08/2011
Equity strategy and market outlook - August 2011
Download via: Website

Alastair George discusses the implications of developments in the ongoing sovereign debt crisis. Bond markets do not seem to be offering any compensation for the risks of an inflationary outbreak, which often follows a sovereign debt crisis. In contrast, UK and European equity markets are not expensive. With careful stock and sector selection, equity portfolios should offer much higher medium-term returns than bonds with a degree of inflation protection, for those investors who can accept the inevitable short-term risks.
Sector report cover

08/07/2011
Equity strategy and market outlook - July 2011
Download via: Website

In this month’s strategy piece, Mark Power reminds investors of the on-going government intervention in asset markets, notable this month with unexpected release of strategic oil reserves. Meanwhile purchasing managers indicate a continuing (albeit) slowing expansionary outlook notwithstanding the increase prevalence of profit warnings in the UK and Europe. In the UK, investors seem to be favouring healthcare and utility sectors in H111, a prudent strategy in our view.
Sector report cover

10/06/2011
Equity strategy and market outlook - June2011
Download via: Website

It seems counter-intuitive that the best performing indices YTD have been the Western bourses (led by the S&P). Even allowing for the natural disaster that befell Japan, the Shanghai index has taken two quite dramatic leg-downs in the last month. To some extent, China has been playing catch-up and, arguably (as we mentioned last month), the weakening dollar does distort the nominal gains in the S&P. Bill Miller of Legg Mason has pointed out some peculiarities with the S&P’s strength, which had its strongest first quarter since 1998. Only two of the S&P sectors (energy and industrials) outperformed the broader index in Q111, which last occurred in Q100 when the tech bubble was peaking. As Miller points out, this is not a healthy sign for the market.
Sector report cover

12/05/2011
Equity strategy and market outlook - May2011
Download via: Website

Global equity markets, with the notable exception of China, have by-and-large recovered from the shock of the Japanese disaster in March. This should not be interpreted as repercussions being limited – rather, that they are still unknown. We highlighted in passing last month that China, a key trading partner of Japan, would be unlikely to emerge unscathed from the latter’s inevitable growth slowdown. In recent weeks, inflation worries have re-emerged with a vengeance in China and resulted in another interest rate hike (the second in 2011), which led to -7% sell-off in the Shanghai index.
Sector report cover

11/04/2011
Equity strategy and market outlook - April 2011
Download via: Website

Despite a barrage of material developments across most regions, markets remain surprisingly resilient, indeed almost complacent. Inflation is the hot topic across all regions and is clearly having an impact on consumer actions, especially in the UK. Corporates, notably in the US, seem to be less affected, for now. We would encourage investors to reduce risk while they can and to favour businesses with strong balance sheets, franchises and the pricing power to withstand a prolonged consumer downturn.
Sector report cover

09/03/2011
Equity strategy and market outlook - March 2011
Download via: Website

While a market correction may or may not be in place, it seems to us that the key themes we outlined in February (governments printing money, inflationary pressures, and capital flight from bond markets) all hold true and will prove supportive to equity valuations in the medium term. We would not reduce equity exposure and, in fact, any sharp correction should be used to seek out high quality businesses. High-profile citations of inflationary pressure are now almost a daily occurrence in trading updates, and companies – particularly those without hedging in place or indeed pricing power – are feeling the effects fast. The speed of change is surprising to many: as a case in point, just three weeks after its interim trading statement in January, UK soft-drinks manufacturer Britvik last week raised its input cost inflation target from 5-6% to 9-11% (its share price falling 10% on the news). Meanwhile cocoa prices are up 25% since January and oil prices have risen 15%. Companies and investors need to be nimble to keep with such fast moving events.
Sector report cover

03/02/2011
Equity strategy and market outlook - February 2011
Download via: Website

While we anticipate increased volatility in the markets, we remain positive on equities in the medium term as long as governments continue to print money. In a world of conflicting economic indicators, the one safe bet is that confidence in governments is waning fast. For markets, this means likely outflows from government bonds and weakening currencies. Equities – being, as it were, the least ugly – would seem likely to benefit from this loss of faith. That is not to say that it will be an indiscriminate boost: a key theme of this issue is the risk of margin pressure from a surge in input prices. Equity investors will need to become more discriminate and seek out businesses with strong market positions and especially pricing power.
Sector report cover

11/01/2011
Equity strategy and market outlook - January 2011
Download via: Website

2010 was characterised by equities exhibiting profound swings both to the upside and downside as investor psychology appeared to overrule fundamentals. An assessment of the latter suggests the same familiar problems may affect the global economy in 2011, namely a lack of suitable policy instruments to manage the ongoing painful process of deleveraging across the developed world. Stagnating growth and rising inflation represent other concerns. These factors have somewhat masked a recent improvement in corporate earnings, but as fundamentals move back to dominate, there is a risk that these encouraging results patterns may not prove sustainable. Looking to the year ahead, we see no reason to change our current equity strategy, favouring diversified growth (basic materials) and high cash returns (telcos, utilities) principally at the expense of the consumer and financials sectors. Gold also remains highly attractive in our view.
Sector report cover

03/12/2010
Equity strategy and market outlook - December
Download via: Website

Events from the last month constitute a familiar pattern to the extent that equities continue to exhibit profound swings both to the upside and downside as investor psychology appears to be overruling fundamentals. A review of the latter suggests the same familiar problems beset the global economy, namely a lack of suitable policy instruments to manage the ongoing painful process of deleveraging across the developed world. Stagnating growth and rising inflation represent other concerns. These factors have somewhat masked a recent improvement in corporate earnings, but as fundamentals move back to dominate, there is a risk that these encouraging results patterns may not prove sustainable. Looking ahead to 2011 we consequently see no reason to change our current equity strategy, favouring diversified growth (basic materials) and high cash returns (telcos, utilities) principally at the expense of the consumer and financials sectors. Gold also remains highly attractive in our view.