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With a credit crunch in the US and subsequent stock market volatility in the UK, there has been a lot of speculation about the health of the UK economy, pushing UK investment companies into the spotlight. But what is the outlook for the UK and has market volatility produced opportunities for UK investment company managers?
The AIC recently hosted a roundtable of fund managers, some of whose views are detailed below.
Despite recent volatility, both Nick Train, Portfolio Manager, Finsbury Growth & Income Trust PLC and Angela Lascelles, Manager, Value and Income Trust PLC are bullish on the prospects for UK equities.
Angela Lascelles, said: "Since I started investing, straight out of university as a graduate training at Phillips and Drew, I have seen many bubbles burst and several superb buying opportunities.
"Since the late 90s these boom and bust cycles have accelerated and have caused considerable volatility in the UK equity market overall and particularly recently. At OLIM and in Value and Income Trust, we have been consistently bullish of the equity market since early 2003 but in the middle of last year we were (even more) convinced of the attractions and during August I was ringing in from France on the bad days, urging everyone I can think of to get as fully invested in equities as they were able."
Nick Train, Portfolio Manager, Finsbury Growth & Income said: "Now is always a good time to be invested in the UK stock market, but it is especially so after the declines of the summer."
Train adds that the FT All-Share Index offers a wide array of companies in which to invest, operating in every industry and geography imaginable. To be bearish on the London market, therefore, is to be bearish about global capitalism's propensity to generate wealth into the future.
"This would be a bet against history and such bets are invariably loss-making. We think that the wobbles of summer 2007 can best be understood as the correction necessary to ensure an easing of incipient inflation pressures."
Meanwhile, Julian Cane, Manager, F&C Capital and Income Investment Trust PLC said: "During these turbulent times the income objective of F&C Capital and Income helps to provide stability of income and dividend growth to our shareholders.
"It also reminds us that an analysis of any long-term period in the UK stock market's history shows that about half of the total return from investing in equities has come from income and income growth. On this front, the situation is looking reasonably healthy as we currently expect dividends from the market as a whole to grow by close to 6% this year and about the same for next year. This is a rate still well in excess of inflation, and should be driven in turn by earnings growth a little in excess of dividend growth.
"The financial turbulence that we are experiencing stems primarily from a lack of liquidity and not any significant deterioration in the real economy. Most companies are fairly conservatively managed with sound balance sheets and they should not be too adversely impacted by current conditions."
Chou Chong, Manager, Dunedin Income Growth Investment Trust PLC said: "Recent market volatility means that many companies are trading on attractive valuations and offering significant yields, e.g. Lloyds TSB at around 7%. Traditionally UK companies have paid out a high proportion of their profits in dividends.
"The average payout over the last 15 years has been close to 60% but at the moment it is only around 42% so we think some companies are being unnecessarily cautious and there is scope for dividend payouts to rise over the medium term. However, with concerns that problems in the financial sector may spill over to the wider economy, meeting company management and rigorous balance sheet analysis will be crucial in trying to avoid 'problem' stocks."
20 September 2007 © Moneyextra.com
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