Mark Dampier: Are we ready to share the wealth again?
Saturday 09 May 2009
The last eight weeks have seen an incredibly strong rally in global stock markets. For example, since the Standard Life UK Equity Recovery Fund (which I have featured in these pages) launched in early March, it has risen by 50 per cent. That's an astonishing move in such a short space of time, but I would urge investors to not get carried away.
I find it hard to believe that markets won't pull back again and, in my opinion, extreme pessimism has given way to unfounded complacency. Despite this I remain a fan of equity income funds, particularly as interest rates are likely to stay low for quite some time.
The JO Hambro UK Equity Income fund has a realistic yield of approximately 6.3 per cent, in the opinion of its manager Clive Beagles, which includes the prospect of dividend cuts of around 10 per cent during 2009.
The recent move in the market has been led strongly by cyclical companies – those whose fortunes are more closely tied to the UK economy. Clive Beagles felt that analyst forecasts were so dire that companies only had to perform marginally better in order to give the market a positive surprise, which seems to be what is happening.
While the UK's economic situation is serious, he believes we will come out of recession relatively early for three reasons. Firstly the UK has the highest number of variable rate mortgages and therefore the domestic market is hugely affected by the reduction in short term interest rates. Anyone on a tracker mortgage has had a lot of money put back in their pockets over the past year. Secondly we have seen a massive devaluation in our currency (far greater than we saw in 1992 when we were unceremoniously dumped out of the ERM) which makes our exports more competitive.
Finally, the UK only contains five banks, which he argues now appear to have been largely sorted out, whereas in the US they have 6,000 banks that are certainly not out of the woods.
There are several key themes that Mr Beagles has running through the portfolio. One tactic, which others are also warming to, is to focus on companies that are benefiting from their weaker competitors going bust. Surviving firms have, by default, got a much bigger market share. This includes insurance following the demise of AIG, packaged holidays like Tui Travel, and music retailer HMV which has profited from the death of Zavvi and Woolworths.
Some companies are also able to benefit enormously from interest rates that are virtually at zero, including commercial property companies such as British Land and Land Securities.
Mr Beagles is also underweight traditional defensive companies on the belief that their valuations are at a historic high. This is interesting as many other managers believe that they look extremely cheap – as the saying goes, that's what makes a market.
Mr Beagles is also underweight oil, with the exception of a decent position in BP. The portfolio does have a slight tilt towards cyclical areas, which has certainly been the area of the market that has been very profitable over the last few weeks. Plenty of companies are up by more than 100 per cent, but Mr Beagles hasn't been afraid to sell shares when they have given him a healthy profit, despite not generally being a short-term trader.
I must say it makes a change to see a more bullish fund manager, who strongly believes that shares are cheap versus bonds. My own worry centres more around the fact that I don't believe this is quite the same as the start of the bull market in 2003. Although the world economy does seem to have avoided an Armageddon scenario, which at least justifies some kind of market rally, it just feels like too much too soon for me.
However, the one glorious thing about an income fund is that, while the capital will fluctuate, the income will offer a healthy boost to your return and even accounting for dividend cuts the JO Hambro UK Equity Income Fund offers a superior income to most other types of investment.
Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Mark Dampier: An infrastructure fund that builds returns by taking different roads
Simon Read: Timeshare owners accuse Macdonald Resorts of land grab
Five Questions: Changes to car tax discs
Donald MacInnes: Let's pretend Scotland won and now a salmon is running the country
Bargain Hunter: Win a new iPhone 6
- 1 Mario Balotelli: Staff at arson-hit Manchester Dogs' Home convinced Liverpool striker is behind five-figure donation
- 2 Friends 20th anniversary: Alison Jackson photographs reunited cast
- 3 Friends 20th anniversary: The highs and lows of the cast's careers since 2004
- 4 The response to my Pizza Express review has been overwhelming, and taught me a lot about journalism
- 5 Free U2 album: How the most generous giveaway in music history turned into a PR disaster
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize