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Waiting game

06 April 2016

Richard Peirson of AXA Investment Managers believes equities still offer the best opportunities – and says recent volatility was overdone.

Stocks suffered a miserable start to 2016.

By 11 February, when stocks on several leading indices reached their lowest ebb, the S&P 500 had fallen by more than 10% and the FTSE 100 was down more than 11%.

As volatility surged on the S&P 500 and fears increased of a hard landing in China and a global recession, investors could have been forgiven for losing their nerve.

As it turns out, however, selling would have been an enormous mistake. By the end of March, the FTSE 100 had risen 11% from its February low, and the S&P 500 was up some 13%. In the event, neither a dramatic dip nor heightened volatility lasted for long.

“It’s been a tricky start to the year, but most of the news stories that create volatility are just noise and I don’t get terribly concerned,” says Richard Peirson of AXA Investment Managers. “Unless, of course, I expect them to lead to a significant impact on economic growth or, at a company level, to a change in the value of the business.”

Peirson points to the older example of Greece too, which not long ago dominated headlines, but is today largely ignored on the markets.

“Had we been talking a year ago, our subject would have been Greece,” he said. “You know, it’s not a big deal now – 2% of European GDP. But it took up a huge number of column inches in the papers and spots on the News at Ten.”

Measured optimism

Looking at the companies themselves, Peirson finds plenty to be positive about. Indeed, his meetings with management are a good deal more useful for a long-term investor than the roster of worries filling newspapers and causing short-term volatility on markets.

“The majority of the companies we meet have improving profits, and their balance sheets are in great shape,” says Peirson. “There’s not a huge amount of earnings growth out there but most managements seem quite comfortable with their own position.”

Peirson remains convinced that, despite the slower growth, equities remain the most attractive asset class. While the St. James’s Place Balanced Managed fund (which Peirson manages) has some 20–25% in bonds and cash, it is an allocation largely designed to act as an insurance.

“I feel confident about equities compared to other asset classes,” says Peirson. “I didn’t start 2016 hugely optimistic about equities in isolation as there were quite a few businesses that were expensively rated, and I only expected single-digit returns. But compared to cash, which is yielding zero, and government bonds, which are yielding very little, equities still look attractive to us.”

Oil, bricks and cans

Nevertheless, a preference for equities more broadly need not translate into a blindness to sectors. In 2015, the performance of different sectors varied widely. The year’s most significant underperformer was the energy sector.

“The areas where we did badly last year were largely either directly or indirectly related to the resources sector – the oil price fell by more than 50%, so any businesses involved in the sector found life difficult,” says Peirson. “BHP Billiton, which is a really well-run mining business and one of our long-term investments, had a major problem in Brazil. Two of its dams burst, which will cost them a lot of money. They have cut their dividend, and it will take them a long time to restore credibility.”

But if BHP was a drag on the portfolio, its greatest boost also came from a company heavily involved in the energy sector. DCC, a FTSE 100 company headquartered in Ireland, is best known for its distribution of petrol and liquefied petroleum gas (LPG) across Europe.

“DCC is best known for distributing petrol and gas across Europe and last year it made a big acquisition in France, buying Butagaz from Shell – DCC shares returned 62% last year,” says Peirson. “Our second-best performer was, again, a pretty unknown business: an insurance business called Novae. It returned 60% last year as a result of producing some really good results from a very undervalued position.”

One of the sectors that Peirson has been confident about for the last two or three years is housebuilders. It has already provided significant returns for the fund, but he remains positive about its capacity to offer still more. Last year, Crest Nicholson returned 48%; Persimmon returned 36%; and Bovis returned 19%.

Finally, of course, sometimes just the fact of being in the market and holding attractive companies provides an unexpected boost.

“When you buy something, you don’t expect it to be taken over, but it’s good news when it happens,” says Peirson. “Quintain Estates, which was a comparatively recent investment when it was taken over, returned 48% last year. Rexam, a global leader in cans, and a long-term holding, was also taken over – it returned 38%.”



The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The opinions expressed are those of Richard Peirson and are subject to market or economic changes. This material is not a recommendation, or intended to be relied upon as a forecast, research or advice. The views are not necessarily shared by other investment managers or by St. James’s Place Wealth Management.

FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.


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