Given the European Central Bank’s ongoing quantitative easing programme, for some investors the only action required in the US equity market is immediately boarding a flight across the Atlantic.
However, Edelsten, manager of the Artemis Global Select Fund, begs to differ, saying that not only is the apparent stalling of the US equity market merely a sticky patch, but we could be on course for the longest-ever bull run.
“Records are there to be broken,” he said. “We started at a very low ‘low’, and when that happens the ‘top’ tends to be very high.
“It feels very like 1995, which was a slightly tricky period ahead of the market going on another before going into ‘overboard’ territory. We just need to get through the tricky territory by being very cautious and patient in a capital-protective way, and understanding that after five years returns are no longer going to be massive.
“Once we are through that period and the interest rate rises have happened it could kick off again and turn out to be the longest cycle ever.”
While some investors are concerned over US equities entering 2015 at higher valuation levels than in 2008, Edelsten is adamant that the two situations are completely different.
He believes that in some ways the legacy of the financial crisis is buoying up the current cycle, once through the temporary stall the market could enjoy another three years before the inevitable downturn.
“Bull markets tend to hit the end when debt builds up in either companies or private sector, and neither of those things have happened yet,” Edelsten expanded.
“The yield on the US stock market is around 2%, and interest rates are 0.5% heading for 2%, so unless you are investing only for capital gains there is no argument that the US is overvalued. There are no conditions for the market to be at a 2000 or 2008 top.
“There is a funny sort of symmetry about stock markets; if you are coming out of a period like 2008 – it means that all the companies then try to make sure that they have rock-solid businesses and do not owe the bank any money. So to get to that 2008-like top there would need to be a complete reversal of that and all this money sloshing around.”
So how has Edelsten positioned his portfolio in order to capitalise on this extension of the bull market, given the potential impact of the Federal Reserve’s interest rate rise?
