Peirson says that equities are 'not hugely expensive, but no longer cheap'. He adds: "Earnings growth will come through, but it is likely to be weighted to the second half of the year. There is a currency headwind for all international businesses in the UK."
He says that markets are likely to see rises of 10% , rather than 20-30% seen in 2013. However, merger and acquisition activity may drive markets higher if it comes through. Peirson believes that with low funding costs and relatively low asset prices, acquisitions are likely to be earnings enhancing and many companies are now confident enough to undertake them.
Peirson continues to be negative on bonds. The bonds and cash portion of the fund has typically been around 20% and is designed to smooth out some of the equity market volatility. The majority of this is currently held in cash. He adds: "We would invest more in government bonds if yields rose. We do not want corporate bonds because there is already enough credit risk in the fund through the equity weighting."
Peirson manages the UK portion of the fund and has a small and mid cap bias. The UK currently makes up around half of the overall equity allocation. The international portion is assigned to the group's regional specialists. At the moment, Peirson says, none are finding so many opportunities in their individual markets that would prompt an asset allocation shift: "They are happy with the stocks they are holding, but none are asking me for a greater allocation."
The Axa Framlington Managed Balanced fund is top quartile over one and three years. Over three years, the fund is up 27.9% compared to the IMA mixed investment 40-85% shares sector average of 19.9%. Peirson has run the fund since 1994.
