group factors in annual returns of 8%-10% on us equities over a three-to-five year period
UBS Asset Management is factoring in annual returns of 8%-10% on US equities on a three to five year view.
The group sees this as a very attractive proposition in a low inflation environment. Tom Digenan, fund manager at the group, told delegates to Investment Week's recent US and European Markets Forum that the North American markets have returned to fair value now that the effects of the technology bubble have eased.
As evidence he pointed to companies cleaning up their balance sheets to create solid business models that were missing three years ago. Digenan added the nature of accounting has come a long way and there is now more focus on fact-based accounting rather than a subjective system.
Despite the rise in quality companies, corporate spending has still not picked up but Digenan said there is usually a time lag between a rise in profitability and corporate expenditure.
He said: 'We are going to see capital spending returning. Companies have been burnt by overspending during the bubble and before spending returns we have to see a return of profitability and increase in cash flows.'
Digenan highlighted newsflow as a key factor which has been producing high equity volatility in the US. He said during the tech bubble investors chased performance without understanding the fundamentals of the companies they were investing in and the long-term profitability projections of these companies was being driven by news.
The US market remains very volatile due to its sensitivity to daily news flows and some stocks have underperformed the Russell 1000 by over 30% in the last month, said Digenan. He added: 'An irrational phenomenon has been that investors are looking for low-priced stocks. Since the market low in the last quarter to 31 March, investors have been investing in stocks based on what the price was.'
First mentioned in Cridland Report
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