potter – world running out of bearish reasons

Investors considering allocating to equities for the first time in years could do a lot better than “dipping their toes in the water” with large caps, according to Gary Potter, co-head of multi-manager funds at Thames River.

potter - world running out of bearish reasons

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For five years now investors have forgotten equities can do a good job and have focused on macro considerations at the expense of micro, he said, but 2013 is set to be a transitional year where fundamental stock research is rewarded again.

In the second half of 2012 he said active managers really started to come back into their own and Potter said his team was increasingly disposed towards riskier assets such as equities.

Even in his cautious portfolio where he is obliged to hold bonds Potter has taken a significant underweight compared with the IMA sector average – 33.9% versus 42% from the sector.

In the equity markets he likes US and Japan, but remains underweight Europe and neutral on the UK.

But Potter does not necessarily think blue chips are the “answer to everybody’s prayers”.

“When people have been avoiding risk the next step is convertibles or large cap equities, as their first toe in the water. This is not necessarily going to provide the most profitable outcome.”

Small and mid caps which have the potential to be at the receiving end of M&A bids as business confidence improves are a better bet for Potter.

They had a strong growth in 2012 but even in the UK equity income sector those funds that have led the way have been those with a material overweight in small and mid caps. Offerings from Cazenove, Ardevora, Standard Life Investments and JO Hambro fit this bill, Potter said.

“We might just be starting a multi-year period where stock markets look healthier and there’s a reasonable chance many people are going to find themselves with relatively poor concerns against the backdrop of healthy returns.”

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