In an update to investors, Bennett said it was vital to distinguish between the economic recovery and the stock market revival. He described the economic recovery as tepid, adding: “Things have just stopped getting worse."
Bennett pointed out that recent European company announcements haven’t revealed a recovery in profits or dividends: they have just shown that companies are "bumbling along the bottom."
Fortunately, that is all that is needed for managers to make money. Bennett says: “When the stock market is pricing it as if it is going to continue to decelerate and it stops, that can be an opportunity." He adds: "That’s what our business is about. Our business is not about absolutes. When things stop deteriorating that can be enough to make investors a lot of money."
Despite this, Bennett has been bringing down the gearing in the fund, because he believes there are more risks to the downside coming from the US. He expects the US market to have peaked for the short term, as he feels valuations had become "a bit silly". He adds: "If we’re right that the US market is going to lead to the downside… Europe rarely goes up in that environment."
The fund is about 12% geared, but Bennett points out that this has to be seen in the context of where the borrowed money is being invested. He says: "I’ve got a 5% position in AstraZeneca yielding north of 5%, so it’s funding high dividend, high yielding situations at the value end of the market with low beta, so I’m still pretty comfortable with low double digit gearing." He added: "I’m not happy going much into the teens at the moment."
