While still positive on the outlook for domestic consumer cyclical spending, Frikkee believes that stock valuations could have reached their peak for 2015 and has positioned her UK Equity Income portfolio for the possibility of an impending market correction.
“Lots of stocks are trading expensively, and a number of my stock valuation multiples are reaching 10-year highs or even higher,” she explained.
“My fund has gone up 6% in the past two months, which is lovely but not really normal, so I am wary that things have gone up too fast and too soon. There are lot of stocks that have hit as high as I think they can go and we are only in March, so that does not leave much room for the rest of the year.
“In 2014 the market sold off three or four times, so I do anticipate a correction but I don’t know when or how much of one there will be.”
Contrary to reticence in some investor circles over holding high levels of liquidity in the current market environment, Frikkee presently has a 12% weighting to cash.
“My cash levels move in the opposite direction to my view on the market, so if I am bearish on the market my cash level goes up,” she said.
“I am happy to hold [existing stock positions], but also very relaxed about having high cash levels. I am trying to lose less when the market goes down – we are getting close to that point, therefore I am in capital preservation mode and waiting for stock valuations to come down.
“We are in a volatile environment, and I am positioned for that see-saw effect. I am pleased that my fund has kept up with the bullish market, but nervous enough to position myself for it going down.”
Though she is also optimistic on US consumer spending, Frikkee outlined the possibility that the US growth story could soon taper off.
“The numbers coming out of the US have been quite weak and earnings growth looks like it is stabilising,” she expanded.
“The US market has gone up in a straight line since 2009, and a lack of anything new or exciting could be negative for it. With it being valued very highly there is very little wriggle room, and sentiment can swing instantly. We have had two negative days in the US market, and if there is a third things could start to go down – you just never know.”
