Bennett, who runs the £1.2bn Henderson European Selected Opportunities Fund, argued at Portfolio Adviser’s recent Europe Expert Investor event that “the world has gone mad” for predictable income and safety.
The manager said the signs of a growth and/or income stock bubble include investors “running scared of volatility”, craving certainty and hunting for yield. He sees all these signs in today’s markets.
“Stability – I think that’s the new bubble in town. People are, in my view, wrongly running away from volatility and are craving stability but they will end up overpaying for these very stocks,” he said.
Bennett cited Nestle and Anheuser-Busch as being among the “global elite” of companies that can deliver stable growth and reliable income. However, he claimed these could soon become too expensive.
Nestle is currently trading at 16 times earnings, Bennett noted, but he warned that it could increase to 20 times “if this stability craving continues”. Anheuser-Busch is on 17 times earnings, which the managers thinks overestimates its long-term prospects.
Furthermore, Bennett said that institutional investors such as pension funds and life companies are “camped in bonds” because of the demands of regulators. But he noted that yields have dropped too far, highlighted US ten-year Treasuries sitting at a 220-year low.
“The market is running away from volatility and I think now is the time to be embracing volatility,” he warned. “The price you’re paying for safety has become extremely dangerous. I think that is the next big accident to come.”
