Select conference 2019

This year’s Select conference took the temperature of global market stock markets, gathering views from ten leading asset management firms. What were the seven big themes to emerge?

The UK is cheap

Richard Colwell, Head of UK Equities at Columbia Threadneedle said he is seeing more activism in the UK market because valuations are so depressed. Active managers need to agitate to crystallise the value inherent in their holdings. M&A is increasing and could accelerate were there to be any kind of resolution to the Brexit problems.

Today global asset allocators are as underweight the UK as they were in 2008-09 when the banks were going bust. It’s not that bad. Investors waiting for the UK to turn before investing need to remember that markets move very quickly and missing the first days can mean locking in the recent run of poor relative performance.

Diversification is vital at the end of the cycle

Iain Stealey, Portfolio Manager, at JP Morgan Asset Management says income remains important, but diversification is even more so as the cycle turns. That said, he believes recession remains some way off. Central banks are still supportive: the Fed is going to be cutting this year with the ECB doing the same.  Business sentiment has rolled over, but consumer sentiment, especially in the US, is holding up well. There is low unemployment and wages are picking up faster than inflation. 

Simon Edelsten, manager of the Artemis Global Select fund, says he holds an ‘unfashionable 50-70 stocks in his portfolio, believing this is not a time to have all your eggs in one basket. He also has only 2.5% in any one stock and has been more defensively positioned in recent months.

Technology is the most compelling long-term trend

Richard Clode, Portfolio Manager at Janus Henderson asks what will change over the next decade? Will people use less technology or more? Will fewer industries be disrupted or more? He believes this is easier to answer than to predict than Brexit or the oil price. He points out that next year 59% of the workforce will be millennials and generation Z. Swipe-right generation will increasingly define the future of companies.

In spite of the trade war, China’s economic influence will grow

Hyomi Jie, portfolio manager, Fidelity China Consumer fund, points out that in 2015, only 10% of the Chinese population made more than $10,000. But that number is expected to increase to one third of the total population in 10 years’ time. Such a huge scale of wealth creation will make Chinese consumers buy more and better things. At the same time, urbanisation is changing people's lifestyles and the way they consume.

Matthew Dobbs, Fund Manager, Asian Equities and Global Head of Small Companies at Schroders says that even if China slows - which he believes is a necessity - the Dollar-value of GDP growth is still a “very big number”. The amount of venture capital funding and new ideas are growing and Asia is building its own self-sustaining infrastructure.

As interest rates fall, income remains valuable

Investors may need to look further afield for income. Devon Kaloo, Global Head of Equities at Aberdeen, points out that in emerging markets, the number of companies paying dividends has increased substantially and today a significant part of returns are being paid by dividends. Income strategies are appropriate for this market.

Jason Borbora-Sheen, Portfolio Manager Investec says that looking back at asset class performance over the last 20 years, even in low yielding asset classes, the contribution from income to total returns is over 50%.  Returns generated from income are more stable than those based on share price appreciation and if the risk of recession is increasing, having a reliance on capital growth may not be the best idea.

A small change in environment could make a big difference to asset class returns

Nick Mustoe, Chief Investment Officer, Invesco said the valuation disparities in markets are now so huge that even if there is a modest change in sentiment, there will be a huge change in terms of what works and what doesn’t. There only needs to be a small shift to the consensus for returns to look very different. He believes the economic cycle can continue much longer, although the expansion will be modest.

Sustainability is here to stay

Ben Constable Maxwell, Head of Sustainable and Impact Investing at M&G Investments, says sustainable investing is vitally important at a time when regulation is increasing. The EU’s sustainable finance plan is really driving the world and driving Europe.

There is increasing demand on advisors and managers offer their clients a number of options in terms of ethical and sustainability preferences. More importantly, he says, there is a clear link between financial returns and a company that is run sustainably.