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Axa’s Peirson: Equities will rally
Equities will rally this year in spite of negative company news and profit warnings, Axa Framlington’s Richard Peirson has predicted.
The manager of the £346.9m Axa Framlington Managed Balanced fund said 2012 was likely to be the “reverse” of 2011 in terms of stockmarket reaction to company newsflow.
“The corporate sector last year was in great shape with strong balance sheets and so reported good data, but that was all lost in the wave of negative macroeconomic news,” he said.
“This year companies will disappoint, but valuations are so low that they will definitely be higher at the end of the year.”
Since the start of the year several high-profile companies have issued profit warnings including Tesco, which saw its share price fall 20 per cent after issuing its first profit warning for 20 years. Research from Ernst & Young published last week revealed that the number of profit warnings in the fourth quarter of 2011 rose by 70 per cent compared with Q3 2011, a trend which the accountancy giant said is likely to continue into 2012.
Elsewhere in the Managed Balanced fund, Mr Peirson said the portfolio’s US exposure had been a key contributor to outperformance during 2011. As well as the 13.3 per cent of the fund invested directly in the US, which is managed by Axa’s star US equity manager Stephen Kelly, Mr Peirson increased his US exposure through UK-listed companies during the first half of 2011.
“We opened a position in Vodafone, which is now 4 per cent of the fund,” Mr Peirson said. “We’ve also added more to WPP, which has a significant US business, and Diageo, which has its fastest growth from emerging markets, but the US is still very important.”
The manager also added to holdings in Pearson, the publisher of Investment Adviser, and construction firm Ashtead, but has made few changes to the fund during the second half of 2011. The portfolio has a 10.9 per cent weighting towards gilts and overseas government bonds, as well as 10.2 per cent in cash.
Mr Peirson sold down his gilt weighting during the course of 2011 from roughly 9 per cent to 3 per cent of the fund, splitting the proceeds between cash and short-dated German bunds.
