Jacob De Tusch Lec, who runs the £3.6bn Artemis Global Income fund, has said he is continuing to invest in economically cyclical shares, despite rising interest rates.
The price of cyclical stocks is affected by ups and downs in the overall economy. They typically relate to companies that sell discretionary items consumers can afford to buy more of in a booming economy - when interest rates are usually low - and cut back on during a recession.
But interest rates in the UK and the US have been rising, all be it slowly, with the Bank of England doubling the base rate to 0.5 per cent earlier this month.
However according to Mr De Tusch Lec, October "provided fresh confirmation of the near-universal strength of the global economy", justifying his continued backing of cyclical stocks despite the potential dampener of higher interest rates.
"Economic data was stronger than expected and news on third-quarter earnings from companies worldwide was good."
With such data, he said it would be typical to think under normal conditions it would be hard to envisage them improving much further.
But these are not normal conditions and this is not a typical economic cycle, he said.
Traditionally when the global economy been this strong, the low levels of unemployment mean wages start to rise, which pushes inflation upwards, and that leads to central banks rapidly raising interest rates, which slows down the pace of growth in the economy, dents consumer spending and reduces the returns available.
But Mr De Tusch Lec said: “this is not a normal economic cycle”, with monetary policy tightening at a much slower pace than has historically been the case, aiding the case for equities.
Mr De Tusch Lec’s comments come on the day US inflation came in below expectations in October, it was also lower than expected in September.
Nancy Curtin, chief investment officer at Close Brothers said the worse than expected inflation data indicates the traditional link between low unemployment and and higher inflation is broken, and this may prompt a rethinking of interest rate policy by the US Federal Reserve.
Fund manager David Jane, who runs £780m of assets across three multi-asset funds at Miton, said that while higher interest rates are traditionally bad for equity market performance, the fact that we have had record low rates and quantitative easing means central banks are in “uncharted waters” when it comes to changing monetary policy, and so will proceed slowly, and the damage to equity returns will be minimal.
Minesh Patel, adviser at EA Solutions in London, said he regards most developed equity markets as being relatively expensive.
David.Thorpe@ft.com
