Investments 

FTSE 100 bull market fears a myth, say managers

FTSE 100 bull market fears a myth, say managers

Fund managers have moved to quell fears in some quarters that equities are heading for a crash.

Tony Yarrow, who manages around £250m in two funds for Wise Investments, has said investors should not be concerned that UK equities are in a bull market - one in which share prices are rising, encouraging buying.

Today (15 September) the FTSE 100 stood at 7,201.87.  At the same time five years ago it was at 5,852.

Mr Yarrow's optimism for the asset class is based on this view that the prevailing economic conditions will continue to benefit equities.

As hints this week from the Bank of England suggest an interest rate rise sooner than previously expected, Mr Yarrow said he believes stocks will escape the pain inflicted on other assets from rising rates.

This, he said, will be felt in sectors such as property and other areas of the market where the risk profile is lower and so the price of the assets is more vulnerable to movements in bond yields.

He said: “The experts are warning that shares are more expensive now than at almost any other time in history - dangerously overvalued, and only maintained at current levels by central bank policies which appear to be ending.

"[But] in today’s markets, while we can see plenty of overvalued assets, we can see plenty of bargains as well.”

Many market participants take the view that equities have reached the present valuation levels simply because bond yields are low, so investors are buying equities instead.

That school of thought is predicated on the idea that interest rates will increase, and push bond prices down and yields upwards.

Nick Train, who runs the £1.2bn Finsbury Growth and Income Trust is another fund manager who believes equities are inexpensive.

He said that while the FTSE 100 might have hit a record level, it was beating a previous high set in 1999, and taking seventeen years to beat a previous record doesn’t imply a market beset by irrational exuberance.

Mr Train's positive forecast is built on his view that the long-term trends towards deflation in the global economy will increase the spending power of consumers, and drive up the returns that can be achieved by shares.

Brian Dennehy, who runs advisory firm Dennehy Weller, said there is likely to be an equity market crash of at least 50 per cent within the next five years, with the “extraordinarily expensive” US market dragging the rest down.

David.Thorpe@ft.com