He explained: “The UK’s situation is very similar to what is happening in the US and Europe, and it is important to remember that for every loser – namely mining companies and oil prices – there is an enormous crediting feature that is happening to Western economies.
“We could wake up within the next 12 months and realise that things are not as bad we thought they were, and interest rates of 0.5% are actually completely unsustainable. Policymakers want to be behind the curve and are, but it is a question of how far behind they should be, and that will be speculated over at some point next year.”
So, given the recent global equities rout and Dixon’s considerable exposure to the FTSE 100 in his top 10 holdings, how is he viewing the road ahead?
“Since the market fall the bad areas have just got worse, and we are yet to see the de-rating that we might have expected, so the opportunity set is quite small,” he said. “On the downside we need to be alert to capital destruction in mining and oil companies, and on the upside we are nervous about the areas of the market that are trading at 25-35x earnings and could easily de-rate.”
In line with this reticence, Dixon describes the number of stocks currently being reviewed as potential portfolio candidates as a “record low”, with just five names under consideration, compared to almost 100 this time last year.
However, Dixon stands by his present convictions, which include 7.46%, 5.1% and 3.43% overweights to capital goods, diversified financials and consumer durables & apparel.
“The key areas for us are still consumer and financials,” he summarised. “We should not be fretting about asset quality in developed markets, because broadly speaking the banks have not yet lent in this cycle – they are still discussing the loans that they made in the last cycle.”
