After first beginning to increase exposure to equities in early 2017, chief investment strategist Ben Seager-Scott said he had continued to up exposure towards the end of the year due to the strong fundamentals such as earnings.
The change in stance had little to do with a supposed Fomo (fear of missing out), and more to do with a turnaround in fortunes for many stocks, he said.
“There has been some suggestion that investors were fearful over high valuations earlier in the year, but have now simply capitulated and given in to a Fomo rally. From our perspective, our changing stance from 2016 to 2017, from negative to neutral to marginally positive on equities, is driven much more by the change in fundamentals,” Seager-Scott said.
Since the start of 2017 earnings have improved and leading PMI indicators have rebounded, leading valuations to fall despite markets’ continual rise.
He added: “If you go back to the middle of last year, we saw global equity valuations simply moving ever higher, whilst fundamentals – company earnings – were falling. Clearly a worrying and unsustainable trend. Since then, however, we’ve seen a turnaround in fundamentals.”
Figures released at the end of last year by Trustee MPI showed equity allocations across the board had begun to rise in Q3 2017 after falling in the first two quarters of the year.
As global growth remained strong, batting off any rumours of a correction, equity exposure in the average medium-risk portfolio rose more than 2% during the third quarter, with total allocation standing at 52.33%.
Exposure to equities at Tilney has also increased, Seager-Scott said: “With fundamentals improving and valuations showing signs of coming in from their recent highs, this adds to our confidence to increase equities, as we had been throughout 2017.”
However, he concluded: “All that isn’t to say that risks aren’t still out there, particularly as ultra-loose monetary policy is withdrawn and there is the possibility that equity markets get back to their healthier, more volatile selves.”
