A weekly snapshot from BNY Mellon Investment Management, one of the world’s largest multi-boutique asset managers with US$1.7 trillion under management.
First up is Newton’s global equity manager Nick Clay who asks whether investors should run with the herd and be greatly disappointed?
“Today markets are in voting mode but the time for weighing eventually comes. With valuations at extended levels (the US median stock is valued at 18x previous year’s earnings, highest ever recorded), with corporate profit margins already at peak levels, with an economic cycle long in the tooth, the chance of great expectations being disappointed is high.
“As a result, investors have been migrated along the risk curve to generate returns stolen from them in the traditional areas they would comfortably invest. The requirement for income has felt this effect more than most. Nick questions whether investors should run with the herd, exploit leverage to boost returns or aim to generate returns more resiliently by investing in cash flows that will be robust in a number of different scenarios.”
Next up is Co-Deputy Chief Investment Officer of Standish Mellon Raman Srivastava who says that we should be ready to capitalise on market volatility in t remainder of 2015.
“The volatility we have seen around Europe is temporary and as agreements are reached within Greece, with the European creditors, we will see some stabilisation within Europe. There is potential for rates to move higher in the near term, but the scope and speed of what we saw in Q2 is not likely to be repeated in Q3 or Q4.
“We’ve been positioning the strategy to benefit from volatility over the remainder of the year by increasing some positions in parts of the credit markets and securitised markets. We continue to be minimally exposed to emerging markets and focus on high quality developed markets. If there is a rate hike towards either September or December, there’s a chance this could be met with further market volatility and should this occur, we’re ready to capitalise.”
The final slice comes from Insight Investment’s equity income manager Tim Rees who says that the stronger US dollar could provide a tailwind for UK companies.
“Despite a low yielding environment, blue-chip companies’ balance sheets in challenged sectors such as oil and mining appear sufficiently robust and able to maintain dividend payments over the medium term as management focus remains on restructuring. The stronger US dollar could also provide a tailwind for UK companies that report earnings in US dollars and declare dollar dividends. The effect would be further enhanced if the Federal Reserve lifts interest rates, something investors envisage will happen later this year.
“As the effects of the weaker oil price drop out of headline inflation figures and expectations of more sustainable nominal GDP growth globally improve, increased confidence in longer-term dividend growth in the UK should follow.”
