Fidelity’s Roberts issues warning on FTSE stocks
Fidelity’s global equity income manager warns on market levels as he unveils portfolio positioning.
Fidelity’s Global Dividend fund manager Dan Roberts has issued a warning on equity valuations, in an outlook given six months after launching the fund.
Mr Roberts said that the current high prices being reported on equity markets were surprising, given the recent raft of poor UK economic data and eurozone instability.
In August, the FTSE 100 index of UK shares reached 5,864.7 points, dipping to a still-high 5,775.7 points at the time of writing as the market awaited further details of European Central Bank president Mario Draghi’s plan to buy peripheral European sovereign debt.
“It does concern me,” said Mr Roberts.
“I don’t buy into the argument that some people push that equities look attractive relative to bonds as that is more of a reflection of how extreme valuations in core government bonds and investment grade non-financials are today.
“It is easy to make equities look attractive by making that comparison. During the past 50 years it has been the norm for bonds to yield more than equities but for 50 years before that equities always yielded more.”
The manager added while price-to-earnings (p/e) ratios - or companies’ valuation as a multiple of their earnings - appeared to be attractive, he was mindful of the fact that corporate profitability is at “all time highs”.
“If you think earnings will reduce or come down to sustainable levels then the p/e ratios might not be giving the right answer – the market might not be as attractive as it looks,” he added.
Elsewhere, the manager said when the fund launched in January he expected to build up a relatively concentrated portfolio of 50 stock holdings, but he has now invested in 55 companies after finding “more ideas to add to the fund”.
The manager has nearly 10 per cent of the fund invested in IT - an area which is “not traditionally an income hunting ground”, he said.
Stock holdings include Microsoft, Oracle and Analog Devices. The manager said some of these companies had “derated aggressively”, falling from trading at p/e ratios of 30-40 times earnings to single-digit territory.
“You don’t have much exposure to IT in the UK and so it is a sector I am coming to fresh without any preconceptions,” he said.
“The yields in the sector are sub market yields but the companies are growing dividends aggressively.”
Mr Roberts also has roughly a 7 per cent weighting in Japan, having found opportunities including pharmaceuticals company Astellas and cycling and fishing equipment manufacturer Shimano.