The market's silver linings
After the worst week in market history, shell-shocked investors are asking: have we hit the bottom? James Daley put the question to three bullish UK fund managers
Saturday 11 October 2008
ANTHONY BOLTON, FIDELITY INVESTMENTS
Bolton is perhaps the UK's most successful fund manager. He is now retired from his job running Fidelity's Special Situations fund. In his 28 years as its manager, he helped investors increase their money almost 150 times over.
Bolton has never seen a financial crisis on this scale, but he believes that stock markets are now at, or very near, their lows, and that there are more opportunities for investors today than there have been for some time. He says he's already upped the amount of his own money he's putting into the market, for the first time in two years
Bolton's reasons for optimism aren't macroeconomic; the UK is almost certainly in recession for the first time in almost two decades. But he believes the high level of dividend yields compared to gilt yields, and the large cash positions in mutual funds and hedge funds, are good indicators that the market's fortunes may be about to change.
"In some sectors, I'm seeing the lowest valuations I've seen in more than 30 years," Bolton says. He says he likes the look of the consumer cyclical sectors, such as the general retailers and media stocks. "Media has underperformed the market for the last seven consecutive years, and both [retail and media] are unloved by institutional investors [at the moment]," he says.
Bolton believes there are opportunities in the troubled banking sector, too. He suggests buying a basket of well-capitalised banks. "Above all, look for well-financed companies, as lending conditions will remain tight for the foreseeable future and as companies come to refinancing their loans, they will find it hard to get decent terms."
Finally, he advises investors alarmed by the market falls of recent weeks to keep their nerve. "Too many private investors get sucked in at the top and shaken out in difficult times – the opposite of buying low and selling high," he says. "Most importantly, don't become more bearish the more market conditions worsen."
EDWARD BONHAM CARTER, JUPITER ASSET MANAGEMENT
Bonham Carter, chief executive of Jupiter Asset Management, is one of the most respected voices in Britain's investment community. He believes it's still too early to establish what the full consequences of the current crisis will be, but agrees with Bolton that there may now be some good opportunities in the market for investors. "It is worth remembering that the kind of extreme volatility we are seeing, while unnerving for investors, is often driven by short-term sentiment and does not tend to reflect the real long-term prospects for the economy and individual companies," he says.
"As Warren Buffett has shown with his bold investments in Goldman Sachs and GE, these types of conditions can engender an ideal environment to purchase potentially strong-performing companies at low prices. Moreover, we are now 16 months into the current bear market, making it look rather long in the tooth. Most last about 18 months as markets often turn long before the economic cycle."
Bonham Carter believes the companies likely to be in favour are those who have solid yields, but not those who manufactured higher returns through high leverage. "It is worth remembering that, over time, the majority of investors' total returns from equities come from dividend growth and the reinvestment of those dividends. Profit warnings will undoubtedly increase, some companies will have to cut their dividends and the overall yield on the market will fall as the banks cut their payouts. But there are still plenty of well-managed companies that will be able to grow their dividends and being able to buy their shares on yields of 4 to 6 per cent looks attractive."
BILL MOTT, PSIGMA INVESTMENT MANAGEMENT
Mott has been one of the most respected income fund managers for 30 years. With a PhD in quantum physics, there's no questioning his intellect.
Like Bolton, he believes we are now being offered a unique opportunity to buy quality UK stocks at distressed prices. "The reason we are being given this opportunity is because some investors believe this could be a once-in-a-century Armageddon," Mott says. "But we think Armageddon will be avoided and, looking out three to five years, share prices today will have looked like a huge buying opportunity."
He says the key to markets turning round will be the restoration of confidence in banking. But once this crisis is over, he believes the surviving banks will be in a strong position, with the opportunity to earn wide margins.
Other sectors he believes are undervalued are the pubs. "Some pub operators are priced as though no one will ever buy a pint or a burger in a British pub again," he says. He likes the look of some building material companies and housebuilders, which are pricing in "a decade or more of misery".
"We believe life will be tough, but not to these extremes," Mott says.
- 1 The truth about 'girl things': Three cheers for Heather Watson's honesty
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 5 Men behaving badly: Urinating while standing, 'manspreading' and the gendering of selfishness
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
Day In a Page
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 deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
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