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By Rebecca Clancy | Published May 18, 2012

Top managers warn of expensive equities

Some of the UK’s top multi-asset fund managers have warned that equities are still too expensive in spite of recent falls, while high-yield bonds look relatively more favourable.

Speaking at the Morningstar conference earlier this week Newton’s Iain Stewart and Standard Life Investments’ (SLI) David Millar said in a panel debate that equities needed to fall further before they would begin to increase their exposure to the asset class.

Jupiter’s John Chatfeild-Roberts agreed and stressed that a defensive positioning was currently appropriate.

“Markets would have to go lower to put money into equities,” Mr Stewart, Newton’s £5.5bn Real Return fund manager, said. “But where equities fall so would high yield, so that would also present another opportunity.”

Jupiter’s chief investment officer Mr Chatfeild-Roberts said he was focused on hunting for globally focused, high quality, dividend-paying companies with strong balance sheets.

Mr Millar, a manager on SLI’s £11bn Global Absolute Return Strategies (GARS) fund, said in light of the situation with equities he was a “fan” of high yield in spite of the associated risks.

“I’m a fan of high yield. It is taking a risk – quite a lot of significant risk, but it is maybe half the risk of equities but more of an income stream,” he said. “I am hiding behind high yield as my income choice for now.”

When asked where the managers would invest £100,000 currently, Mr Stewart and Mr Millar said they would buy high yield. “I’m not a stockpicker so I will stick at a macro level and go with high yield,” Mr Millar said.

Mr Stewart said he would look for companies that have relatively high quality balance sheets, are dividend-focused and invest in their high yield stock, provided the company was not excessively indebted.

Mr Chatfeild-Roberts stressed that he was cautiously positioned as there was a conflict between the government and investors.

“There is conflict between the government propping up the system and the market who just wants reality so we can get on with our lives,” he said.

“Perhaps 2008 was that point. But we don’t want to go up to fast.”

Mr Millar and Mr Stewart are also adding a bias towards the dollar currently, saying the currency is now the nearest thing to a ‘safe’ area in the current climate of debt-based crisis and the potential eurozone collapse.

Mr Stewart said was weighted aggressively towards the dollar as the “knee-jerk reaction [by global investors] to problems in the world is repatriation to the dollar”.

However, he stressed that this was a short to medium-term view as in the longer term US authorities could seek to depreciate the currency to keep the economy’s exports competitive.

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