Mark Dampier: Will the markets recover? Of course

The Analyst

One can spend considerable time worrying about whether Europe is better than the US, or whether the UK is likely to outperform Japan. The trouble is that nobody really knows that, and those who think they know are usually wrong.

Identifying a quality fund-manager is a more realistic prospect. In fact, in many cases it's the fund manager I analyse rather than the fund itself. This week, I will look at the Cazenove European Fund under the stewardship of Chris Rice.

Rice has been running this fund for six years, and has 16 years of investment experience. In my opinion, he is easily one of the top European fund managers and should be seriously considered by those seeking an investment in the region.

Right now, perhaps you are thinking I am completely mad. Who would want to buy shares now? Isn't the world coming to an end? Well, when markets establish a clear trend people can never imagine that trend reversing. During a bull market, people seem to believe it will rise for ever, and when we're in a bear market, people reject the possibility that it will ever rise again. Experience tells us that both viewpoints are wrong.

Chris Rice's style is to run a diversified portfolio of shares in large and medium-sized companies. He looks carefully at the business cycle and tries to match his stock picks to where we are in the economic cycle. This is not an easy thing to do.

When I caught up with Rice last week, he said he saw three different cycles at the moment: economic; corporate; and valuation.

The valuation cycle brings some positive news. The start of 2009 saw the market valuation at around the third-lowest it has been in its history, with share prices at around 7.5 times earnings on average. From that point of view, the market appears cheap. However, we are not quite out of the woods yet. Rice believes that any recovery in the short term could be sharp, but we are not yet at the stage of a sustainable rally.

It seems we still have some way to go before we reach the bottom of the corporate earnings cycle. Perhaps we are halfway through the traditional peak-to-trough fall in earnings, but most of the fall so far has come from the financial sector. Other parts of the economy have not suffered to the same degree, so this is something to keep an eye on in future.

Turning to the economic cycle, governments are doing everything (and anything) they can to try to halt this economic decline. Their somewhat confused approach is causing bafflement among investors and is doing nothing to help confidence in the stock market.

Rice's view is to be overweight in large, well-capitalised defensive companies with little or no debt. He particularly does not want to invest in companies that were exposed to the huge boom in emerging markets, as their earnings of the past few years clearly cannot be repeated in the short term. So his portfolio is full of pharmaceuticals, telecoms and food stocks.

The key factor is what will happen in the financial sector; until it stabilises (whether via recovery or total nationalisation), it is hard to see how the markets can make any headway.

Given all this bad news, I did ask Rice whether it was worth even investing in Europe. While he admits that the next six months is extremely foggy, he remains a believer in the long-term potential of the stock market. I share that view, and in my opinion top-class managers such as Chris Rice are the people to see investors through.

As I have said before, it may be wise to drip money into the markets gradually and to remain committed to a time horizon of at least five years – 10 would be even better.

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

PROMOTED VIDEO
Life and Style
fashionHealth concerns and 'pornified' perceptions have made women more conscious at the beach
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmHe was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
footballA colourful discussion on tactics, the merits of the English footballer and rebuilding Manchester United
Life and Style
Sainsbury's could roll the lorries out across its whole fleet if they are successful
tech
Travel
The shipping news: a typical Snoozebox construction
travelSpending the night in a shipping container doesn't sound appealing, but mobile crash pads are popping up at the summer's biggest events
Arts and Entertainment
'Old Fashioned' will be a different kind of love story to '50 Shades'
film
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Arts and Entertainment
Smart mover: Peter Bazalgette
filmHow live cinema screenings can boost arts audiences
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Project Manager (HR)- Bristol - Upto £400 p/day

    £350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

    Graduate / Trainee Recruitment Consultant - IT

    £25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

    HR Business Partner - Banking Finance - Brentwood - £45K

    £45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

    PA / Team Secretary - Wimbledon

    £28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

    Day In a Page

    Save the tiger: The animals bred for bones on China’s tiger farms

    The animals bred for bones on China’s tiger farms

    The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
    A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

    A former custard factory, a Midlands bog and a Leeds cemetery

    Introducing the top 50 hidden spots in Britain
    Ebola epidemic: Plagued by fear

    Ebola epidemic: Plagued by fear

    How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
    Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

    From 'Parks and Recreation' to 'Guardians of the Galaxy'

    He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
    How live cinema screenings can boost arts audiences

    How live cinema screenings can boost arts audiences

    Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
    Shipping container hotels: Pop-up hotels filling a niche

    Pop-up hotels filling a niche

    Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
    Native American headdresses are not fashion accessories

    Feather dust-up

    A Canadian festival has banned Native American headwear. Haven't we been here before?
    Boris Johnson's war on diesel

    Boris Johnson's war on diesel

    11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
    5 best waterproof cameras

    Splash and flash: 5 best waterproof cameras

    Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
    Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

    Louis van Gaal interview

    Manchester United manager discusses tactics and rebuilding after the David Moyes era
    Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

    Will Gore: Outside Edge

    The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series
    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz