Many managers claim today’s stock market tumbles are a knee-jerk reaction and can spot opportunities for investors.
Here are fund manager forecasts for what is needed to deliver a decent return following the UK’s decision to leave the European Union.
Fidelity’s Rossi says big balance sheets offer protection
Dominic Rossi, global chief investment officer of equities at Fidelity International, said we can expect lower growth in the UK and across Europe, and that is now being discounted in equity markets.
He said we can also expect a mild recession in the UK over the course of this year and into next year.
Today’s result will set off a domino effect of political risk, Mr Rossi added.
Whether it is the US election later this year or the French election next year, investors are going to be far more cautious.
Mr Rossi said: “This morning we have seen a knee-jerk reaction from markets, which were poorly positioned ahead of the vote.
“We may have not seen the end of this; as the dust settles and the fundamentals assert themselves, it’s likely that sterling will continue to weaken against the US dollar and the Euro.
“For investors, diversification is key. This means having a balance between sterling and non-sterling assets, alongside bond assets which will provide a store of value.
“It is also important to remember that there will always be large global organisations with very large balance sheets which in these times offer savers some protection.
“As investors, we use very difficult times like this to buy those sound sustainable businesses that we want to own at a discounted price. However, markets will remain volatile in the short term, so it is essential to tread carefully.”
Axa IM’s Page predictions for economy
David Page, senior economist at Axa Investment Managers, said he had revised his UK GDP forecast for 2017 to 0.4 per cent from 1.9 per cent.
He expected easing in monetary policy before the year end and estimate two 0.25 per cent rate cuts and between £50 to £100bn of quantative easing.
M&G’s Leaviss on ‘loser’ bonds
Jim Leaviss, head of retail fixed income at M&G Investments, said the “losers” in bond markets are the riskier fixed income assets.
As further EU breakup fears grow, Mr Leaviss said Italian and other peripheral government bonds are underperforming.
Italian and Spanish 10 year bond yields have risen by 30 basis points so far this morning (24 June).
Peripheral financial bonds are perhaps 60 basis points wider in spreads at the senior level and up to 130 bps wider at the subordinated level.
Banks in general, even in “core” nations, are also performing poorly relative to traditional corporate bonds.
Senior bank debt is 50 bps wider, and subs are 100 bps wider.
Jupiter’s Chatfeild-Roberts on UK opportunities
John Chatfeild-Roberts, head of strategy at Jupiter Independent Funds team, said the underlying fund managers in Jupiter’s portfolios have a general tilt towards high quality companies with robust balance sheets, which he argued should be well-suited to weathering the immediate storm.
Mr Chatfeild-Roberts said: “Even though there have been falls in markets, it is important to remember that weakness in sterling is good for many UK companies, particularly exporters who gain an immediate price advantage against their overseas competitors.
“Furthermore, that weakness in the pound has given an immediate increase in the sterling value to all our overseas holdings.
“It is important to stress that, despite the current uncertainty about the future, the UK will remain a member of the European Union for at least the next two years while the details of life outside the union are negotiated.
Steve Davies, manager of Jupiter UK Growth fund, said he switched all of the fund’s cash into dollars on the morning of the referendum looking to provide some cushion against an unexpected Leave decision.
As a result, Mr Davies said the fund holds some $115m in cash as well as an additional 9 per cent of its assets in four companies listed in the US and Germany to provide additional mitigation against the fall in sterling.
Wellian’s Philbin on impact on Sterling-based assets
Richard Philbin, chief investment officer of Wellian Investment Solutions, said many of the UK’s best known companies are very international and a fall in Sterling will make their goods and services immediately more competitive overseas.
He said: “We also need to remember that our Sterling-based assets such as gilts, property and UK fixed interest won’t change in value to our Sterling based clients; neither will the income they are receiving from it.”
Architas’ Macdonald goes for gold
Sheldon MacDonald, senior investment manager at Architas, said the investment house intends to retain it’s current positioning across portfolios, with a gradual shift from European to US equities, and a rotation towards longer duration, higher quality sovereign bonds within fixed income.
Where appropriate, Mr Macdonald said Architas may also add to gold at the margin.
