A recent shift in investor sentiment towards equities means now is the time to buy more, according to Trevor Greetham, head of multi-asset investing at Royal London Asset Management.
Mr Greetham’s view is that there are certain occasions in markets when an individual event causes investor sentiment to shift against equities.
He said China’s currency devaluations spooked equity markets in 2015 and 2016, but if an investor had bought equities at that time, it would have proven to be an extremely positive investment.
The Brexit referendum and the election of Donald Trump also represented moments when investor sentiment shifted against equities, Mr Greetham said, but investors who bought in the immediate aftermath of those events have done well.
The fund manager said: “After months of calm investors are starting to get rattled by geopolitical events with the standoff with North Korea and large scale protests in the US causing some disquiet. It pays to buy when others are fearful and we are starting to add to the equity positions in our multi asset funds, increasing our overweight positions there."
“Stocks have performed strongly over the last eighteen months and valuations are starting to get a bit stretched, but macroeconomic fundamentals remain supportive with global growth continuing at a reasonable pace, inflation pressures easing and interest rates low.”
David Jane, who manages £750m across three multi-asset funds at Miton said one reason for investor nervousness about equities right now is the prospect of tighter monetary policy.
The US Federal Reserve has increase interest rates four times since the financial crisis, and market participants are concerned that the next step, the unwinding of quantitative easing (QE) could be bad for equity markets.
To unwind QE the Federal Reserve will shrink its balance sheet, either by selling the bonds it has bought in recent years, or simply not replacing those bonds when they reach maturity.
The effect of such a policy would be to cause bond prices to fall because a major buyer has left the market, that would force bond yields upwards, and so make the yields on equities relatively less attractive.
The consequence would also likely be tighter borrowing conditions, which could impact consumer spending and corporate investment.
Mr Jane described the current bull market in equities as “the most hated in history”, because of those concerns, but he said central banks will observe the relative lack of inflation in the world, decide they can afford to act slowly to tighten policy, minimising the impact on equity markets.
David.Thorpe@ft.com
