FundCalibre Investment Dinner 2015

Last Wednesday was the inaugural FundCalibre investment dinner. We were joined by Marcus Brookes, manager of Schroders’ Elite Rated MM Diversity and MM Diversity Tactical funds, and David Coombs, manager of the Elite Rated Rathbone Strategic Growth Portfolio. They addressed some of the burning issues facing investors in 2015 and debated across a spectrum of asset classes, identifying the opportunities as well as the challenges.

David believes that the looming general election will cause market, as well as political turbulence in 2015

“Markets dislike uncertainty above all else and the outlook for UK bonds and equities is overshadowed by the prospect of a hung parliament at the upcoming general election. Furthermore, a Tory-led coalition victory may see a referendum on Europe which could have a detrimental effect on markets. Hence, the UK is facing a prolonged period of political turbulence. Furthermore, I feel that low demand and booming risk assets have driven market speculation by some UK corporates and not real investment.”

Marcus is positive on the US equity market but believes valuations are not cheap

“I have become more bullish on US stocks, as I expect falling oil prices to stimulate the jobs market further. One of the upsides of a tumbling oil price is that it makes economies competitive; it could create as many as a million new jobs in consumer-related areas in the US, even as the shale industry suffers. So while we may see 100,000 jobs lost in the shale industry, increased consumption will create a million new jobs in the wider economy. Hence, I have become more bullish on the US economy as the oil price has come down.

“I also think the US is not bullish enough on its own economy, that is why it has allowed QE to continue and still has not raised rates. I believe that the US recovery is better than many. However, while the US is a Rolls Royce economy, at the moment you are paying Rolls Royce prices. I believe that the Fed should have raised rates by now given the strength of recovery.”

Coombs is also positive on the US, but also likes Japanese equities

“I continue to prefer developed, non-UK equities versus UK equities: namely Japan and the US. Our overweight there is driven by valuations, accessing companies involved in leading-edge technology, improving corporate governance and an economy that should benefit from lower energy prices. I am overweight US consumer.”

Marcus believes a beleaguered Europe has the potential to surprise

“I am probably more bullish on a recovery in the Eurozone than most and expect the ECB to announce QE at the end of January. I think the key thing is that recent headwinds for European markets – interest rates, the strength of the euro and oil prices – are likely to change into tailwinds in 2015.”

Coombs on the other hand is underweight European equity markets on the back of continued political uncertainty. He said he is not convinced that QE in Europe would make a significant difference.

Coombs believes liquidity risk is high again

“I don’t believe there is enough concern about liquidity risk. I currently hold approximately 11% 11% of the Rathbone Strategic Growth Fund is in cash or cash equivalent assets. I believe currently the assets, other than cash, with low price volatility, low credit risk and duration (interest rate) risk are high quality investment grade bonds, short duration index-linked gilts and the US dollar.”

Brookes says cash is king

“Interest rates may move up sooner than the market expects and therefore I do not have a big bond allocation. Being contrarian you really do have to be patient particularly in fixed income at the moment. I think cash is currently king – this stance will require patience, but I believe it will pay off.”