Five markets to consider following the summer sell-off
Adrian Lowcock, head of investing at AXA Wealth, highlights five:
UK Equity Income
The sell-off over the summer has been broad based and indiscriminate affecting the majority of stocks in the UK market. This means that some good quality companies have been oversold and now look attractive once again. The UK economy continues to remain healthy and with a positive outlook.
JO Hambro UK Equity Income: The fund has a domestic focus because the managers, Clive Beagles and James Lowen focus on mid and smaller companies. In doing so they have avoided the oil and mining bias which appears in the FTSE 100. The managers believe dividends give a fairer reflection of a company’s true value and will only invest in companies yielding more than the FTSE All Share and sell out once a yield falls to that level. The fund currently yields 4.3%.
Europe has been in the headlines for much of the summer as issues with Greece never seem to go away. However, the region continues to look attractive relative to other developed markets and we believe that the impact of a weak currency on the competitiveness of European companies has not been fully appreciated.
Henderson European Selected Opportunities: This fund has been run with a clearly defined investment strategy. Manager John Bennett pays close attention to macroeconomic and sector trends as this helps adds value. Mean reversion is a central theme of the fund with Bennett looking for companies trading below their intrinsic value. This fund is likely to be relatively defensive and focused on large companies.
Japan bore the brunt of the Chinese market sell-off and concerns over the strength of economic growth in China. However the country is still undergoing structural reform with more quantitative easing a possibility. As with Europe, Japan’s currency is also weak and will continue to benefit Japan’s company’s profits.
GLG Japan CoreAlpha: Stephen Harker is a contrarian investor, actively looking for companies out of favour with investors. He uses valuations measures including Price to Book, Dividend Yield and Price Earnings ratio to identify such stocks. He selects companies with strong fundamentals where he believes there is the opportunity for a turnaround.
Commodities are closely linked to China and have suffered hugely during the summer sell-off with the oil price falling below $40 a barrel and other commodities dropping to 1999 prices. Because commodities are dependent on the outlook of the Chinese economy they are likely to may remain low until we see improved economic data from the region. However, China’s economy tends to be cyclical and often puts in a stronger performance in the second half of the year. At these levels resources look attractive, in particular oil, and commodities exposure would be suitable for patient long term investors willing to accept some volatility and drip feed money in.
JP Morgan Natural Resources: This is a diverse commodities fund investing in equities which provides exposure to base and precious metals as well as energy commodities including oil. Manager, Neil Gregson focus is on mid and smaller companies which have the potential for rapid growth. This fund will struggle in falling commodity prices but should deliver in a commodity bull market.
The sector has been out of favour following a period of strong performance where emerging market equities became overvalued relative to their developed market peers. As the recovery in the US gathered pace a stronger dollar and expectations of rising interest rates have made some emerging markets less attractive to invest in. China also naturally weighs on the sector with many countries dependent on the economic strength there. Emerging markets look set to remain out of favour for a while but longer term they will recover.
Standard Life Global Emerging Markets Equity Unconstrained: The fund adopts Standard’s Life Unconstrained approach to emerging market investing, taking advantage of the ‘focus on change’ philosophy.