Investing through a winter of discontent
The term “Winter of Discontent” was used in the opening line of Shakespeare’s...
Fidelity’s equity income managers are favouring health care and consumer sectors right now and they believe Europe and Japan present some good opportunities for income at lower valuations.
We ask two of our Elite Rated managers for their tips.
Dan Roberts, manager of Elite Rated Fidelity Global Dividend fund is reasonably cautious with his outlook for 2017, saying share prices are expensive. We’ve had plenty of market volatility this year though, and he has been using it to add to his top conviction positions.
“While overall market fundamentals and valuations give us cause for concern, there are pockets of value that we continue to focus our attention on. Both Europe and Japan are at more reasonable levels than the US or the market in aggregate and it is here where I expect to identify more companies with good balance sheets and more reliable dividends. These can usually be found in consumer and healthcare sectors,” Dan says.
“In the second half of 2016, financials and cyclical sectors have been leading the market higher. A market-wide reassessment of valuations as well as increased expectations of interest rate rises has meant investors have been turning to riskier sectors of the market to find the best returns, such as information technology and energy.
“Since the US elections, we have seen clear winners and losers – US financials and industrials have been the main beneficiaries. The indiscriminate sell-off of stocks with quality/bond-like characteristics may provide some opportunities to top up existing holdings where conviction is unwavering. There may also be opportunities in stocks that would have previously appeared attractive were it not for their high valuations.”
Michael Clark, manager of Elite Rated Fidelity MoneyBuilder Balanced fund, is equally cautious on the UK economic outlook for the year ahead, but he does believe quality dividend income payers will remain well supported by investors in today’s low yield environment.
“The UK economic outlook remains uncertain and it will be some time before clarity emerges on the implications of Brexit and the new relationship with the EU. The re-emergence of inflation could also hurt the economy with consumer spending the largest contributor to growth,” Michael says.
“Despite this, I believe equities will continue to deliver solid real returns over time and an attractive level of income, especially compared to bond yields. Sterling will probably remain low relative to the levels of 2014 and 2015, but I do not see further falls in the currency.
“This should continue to support share prices in the UK as most of the large companies generate the majority of their revenues and profits in US dollars. So although we have some political uncertainty to contend with, there is good momentum in company earnings and dividends. We expect dividends to increase about 10% in 2017.
“Looking ahead, I continue to favour UK companies with international exposure in the healthcare, utility and consumer sectors, as they offer stable and income generating businesses.”