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
- 1 Tidal launch: The most pretentious lines from Alicia Keys' valedictory speech
- 2 Trevor Noah: Jon Stewart's replacement faces online criticism over 'anti-Semitic' tweets
- 3 Martha Stewart accuses Snoop Dogg of 'smoking for four hours' during Justin Bieber Roast
- 4 Gamers confess the worst things they've done in The Sims
- 5 Syrian child photographed 'surrendering to camera because she thought it was a gun'
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
Revealed: Putin's army of pro-Kremlin bloggers
iJobs Money & Business
£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...
£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...
Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...
Day In a Page
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000