InterestingLeigh: To boldly go where no one has gone before
Leigh Himsworth, head of UK equities at City Financial and manager of the CF Eden UK Select Opportunities Fund, provides commentary for February
Imagine how happy I was recently to discover that I shared a birthday with none other than William Shatner – Captain James T Kirk! Those of a certain age will undoubtedly share my joy, others who may be much younger and, unmoved by this, just read on.
It appears that last month I was right in that investors should just ‘go along with US policy makers’, though I must admit that I didn’t realise that this would mean instantly and to the tune of a 6% jump in markets. There are even suggestions in some circles that very dark forces are at work, that the unthinkable may be happening and that strange breed – the asset allocators – are shifting some funds back into equities. The early evidence could support this as some of the moves seen in small cap stocks through the month suggest a degree of price insensitivity rather than fund manager finesse. The technical, relative strength indicators would go some way to supporting this. Clearly a couple of months could simply be some spurious numbers but one can well understand such a move as equities remain attractively priced versus other asset classes. Equities may also act as some hedge against any return of inflation and should we remain in a subdued environment they could offer growth. If this is correct then expect the actuaries to cotton-on just about when High Speed 2 is reaching completion.
Little has changed fundamentally. As I have pointed out previously, the move to extend the Bush-era tax cuts taken at the end of last month simply stretches the fiscal situation, it provides no further stimulus which is left to ongoing monetary measures. Yes, we have a new head of the Bank of England, but he hasn’t done anything yet other than make a number of speeches and enjoy some hearty English dinners. What has clearly changed is that now the bad news is priced in! Spanish unemployment news is shrugged aside, a collapse in the yen is great stuff and talk of a UK exit from the European Union is greeted with rejoicing. Meanwhile my erstwhile credit colleague that sits to my right continues to tut and alters his board again to read ‘the end of the world has been postponed due to excess stimulus packages that will be with us for some while’.
Fund wise, I have been active. Some of the steps I took to make sure we played some of the mean reversion into this year have paid off. In particular, investment in mining stocks ENRC, and Kenmare have performed strongly; so much so, that ENRC has since been sold into a strong gain. This has also been the case with Rightmove and Kier Group. As alluded to above, the speed of the rise in markets has been exceptional and shorter-term technical indicators, in particular the relative strength indicator, are showing the market to be well overbought. Rather than instructing us to panic sell everything, I am inclined to believe that this is just a sign that we should remain patient, sit back and try to take stock of all that we are seeing. I remain of the view that markets are appealing but would suggest that numbers a little behind last year’s return are perhaps what we should seek from equities again this year. This may mean some tempering of enthusiasm at least until we see a good reporting season from equities.
I am currently focusing more on growth than income and will try to remain patient rather than getting sucked into areas. As always I want to be leading what is going on rather than chasing.
We end January with 55 stocks, 18.1% in FTSE 100, 47.2% Mid 250, 29.9% Small Cap & AIM and 4.8% cash.
And as everybody has jumped on the horsemeat bandwagon, why not me – apparently, a large supermarket chain is to launch a new burger in their Chinese stores and will call it the ‘Quarter Panda’.