Lessons from London

Eamon DwyerNews

Last week Stephen Barry and I attended the annual Morningstar Investor Conference in London.  It’s a two-day event which gives us the opportunity to hear some insights from, and chat with, the best fund managers and analysts from this part of the world. This year it was particularly interesting to note the mood following the Brexit vote, in the company of financial types who last year said it would never happen. On a side note, London is clearly a bit rattled following the recent terrorist threat, with a clear and obvious security presence in force around the main tourist areas.

I will attempt to distil my learnings into a 4-minute read for you.  I’ll give you some sound bites with (very little!) context from the headline speakers. Here goes:

James Downey, Chief Economist with Neptune Investment Management: Feels that tech advances are leading to anxiety and bringing a “twin risk” for ordinary people. Firstly, their investment and pension portfolios need to be invested on the right side of innovation, where the stocks held reflect developing rather than dinosaur technology.  Secondly, people are fearful for their own job security and capacity to generate income with rapid mechanisation of labour.  Tech should be part of every investment discussion now.

Iain Stewart, Lead Fund Manager of the BNYM (Newton) Global Real Return Fund: Scottish and cautious.  I presume he is always the former but less frequently the latter. In his heavily diversified fund, he is diversifying even further right now, after what has been a great market run.  Worried about China, worried about debt in the U.S., worried about tech disruption which hasn’t yet turned into profitable new businesses.  So he’s, em, worried. Or very much in capital preservation mode, if put another way.

Oliver Kelton, Partner with Odey Asset Management: Of the major equity markets, he feels Europe has a strong chance of outperforming this year, after lagging for a number of years. Corporate earnings look like they will be strong coupled with reasonable GDP growth.

James Syme, Emerging Markets Fund Manager with J O Hambro: He focused on the two main markets of India and China.  A big fan of the former, negative about the latter.  Something of a common theme at the conference (these worries about China!). He feels that India is “poised for a cyclical upswing”.

Investment Advice

Ariel Bezalel, Lead Fixed Income Manager with Jupiter: Like many of the speakers, he’s taking profit now and becoming more cautious. I like listening to “fixed income guys” – they tend to have a very good macro-economic grounding.  He favours the European stock market and is utterly negative on the U.S. stock market.  In relation to fixed income bonds, he favours corporate bonds of high quality, along with shorter dated bonds.  Consistent with our own thinking in City Life!

To sum up.  We have seen a dramatic and prolonged market recovery since March 2009, one of the longest bull markets in history.  The positive market response to Trump’s election surprised most, but, according to many of the speakers, will be short lived.  Against some big headwinds, good tech companies, the European market and the India market look to be the common preferences.  At the same time, the overriding mood of caution must be tempered, in my opinion, at least a small bit, by a pervading air of fear amongst the British speakers following Brexit.  They are resigned to a negative, tortuous process which must surely be a dampener on mood.

We will feed all of the above into our portfolio review discussions with you, but as always, your investment timeframe will be the key driver of portfolio changes.  We will continue to diversify and certainly now is not the time to get carried away by chasing large returns.  Investing on a phased, monthly basis may well be answer this year, with the accumulated funds to date spread across geographic region and asset type.

Eamon Dwyer

Managing Director, City Life