Year to date, the FTSE 100 is down around 1%, the FTSE 250 up 2%. Short-termism will get you nowhere, perhaps, but with even a well-received Budget failing to inspire the speculators, the question remains what exactly will drive markets forward for this year?
Or, from the point of view of those still on the sideline, what could trigger a correction and a decent buying opportunity?
“Markets are looking for evidence that profits rose in 2013 and if this continued into 2014, which makes the upcoming reporting season ever more vital,” says Harry Morgan, head of private investment Management at Thomas Miller.
“Markets rose 20% last year, but earnings growth rose 7%. That’s three times as fast, and we would do well to ‘mind the gap’ when looking to invest.”
Catching up
So when are profits going to catch up, and as far as fund managers are concerned, how can they identify the stocks which really are going to deliver? And are they investing with a mindset of profiting from a recovering economy or one that is going to remain sedate?
A more cautious mindset may stick with defensives and, while unfashionable for many, the likes of Diageo, BAT and Reckitt Benckiser have at least continued to grow profits steadily (though not spectacularly) while benefiting from strong barriers to entry in their respective fields.
For Morgan, a better bet may be to look to the likes of Tim Steer of Artemis UK Growth Fund, who is targeting consumer-facing firms that are delivering profits growth in a lacklustre market, such as Easy Jet, Supergroup and ITV.
As Steer himself said in recent update: “We believe that for every global giant there is, in almost every sector of the market, there is a UK-listed equivalent whose performance over the last five years has been just as good – or even better.”
The fate of UK consumer-facing equities is a theme which will continue to feature in Portfolio Adviser in the coming weeks, so keep us posted with your thoughts.
