Part of the reason for this is that the nature of the marginal investor has changed, he told Portfolio Adviser.
“When I started 20 years ago, the marginal investor was a made up of a collection of pension funds and family unit trusts, now it is a hedge fund, an ETF – investors that are not price sensitive.”
As a result, he added: “when there is a disappointment now, you find that a lot of these investors want to short or sell the shares and there just aren’t the long term investors on the other side that are prepared to take advantage of the volatility. But, it also means that doing the work, staying close to the companies and understanding why something has gone wrong is rewarded.”
While the UK economy has been doing well, in recent months, Wharrier points out that the profit picture is pretty subdued, primarily as a result of the difference between nominal and real GDP figures.
“If you look at the real GDP numbers, it looks like a normalised recovery, but in nominal terms it is still very subdued, which makes growth tough,” he says, adding: “What I sense at the moment is that it is a fairly fragile environment for the companies we meet. and there is not a lot of slack in company profit and loss statements at the moment, so if companies disappoint they are punished.”
Asked if he thought that companies that disappointed were punished more severely at the moment than those companies that surprise on the upside are being rewarded, however, he agreed, adding that he, like many other managers, is trying to spot the vulnerabilities in the companies he owns and trying to decide whether or not that is reflected in valuations.
That said, Wharrier is encouraged by the growing valuation gap within equities.
“I think between asset classes you have a lot of correlation, but there is now massive dispersion between companies. It is, the perfect environment for a stock picker – you have a low hurdle to beat but lots of dispersion between stocks within the most liquid part of the market, where historically it has been low,” he said.
