Investment trust's exposure to cash and euro debt to remain until markets show signs of stability
Richard Burns, manager of the Monks Investment Trust, has 17% of the company in non-equity assets and will only begin reducing this when there is evidence that corporate profits will improve globally.
The 17% non-equity holdings consist of euro denominated debt, US index-linked debt and cash.
Burns, also chief investment officer at Baillie Gifford, said that while there was a strong rally in the market from 21 September to early December, this rally has since stalled.
He believes there will not be much in the way of any identifiable strong trends in the market until the end of January.
Burns said: 'I can see the market being up 5%-10% this year as only corporate profits can improve the market and it is difficult to see how profits will be strong this year. Interest rates have now done as much as they can to improve market conditions and these may start rising again in the second half of the year.
'I want to raise the trust's exposure to equity assets but right now it is difficult to find shares that are not too expensive. If share prices are to do well it is because company earnings will be on a positive trend.'
The objective of the £769m trust is to achieve capital growth by investing internationally, with a portfolio concentrated in a relatively small number of holdings, mainly of quoted securities.
The trust is run on a geographical basis, where Burns decides the asset allocation split of the trust and stock selection is left to different regional departments at Baillie Gifford.
Burns said: 'We do look at the oil, drugs, semiconductors, insurance, telephone networks and equipment services sectors, but I only really pay attention to oil, which makes up 11% of the trust.'
As at the end of November 2001, Burns had 35% of assets in the US, 22% in the UK, 10.7% in Europe, 6.3% in Asia, 7.1% in Japan and 1.3% in Latin America.
Burns said one of the areas of greatest opportunity is emerging markets, where the market is geared into the recovery in Western economies, and because of the low share ratings that many companies in the region are on.
In November, Burns raised the weighting of the trust to emerging markets from 4.2% to 5.8%, and he said he is considering putting more assets in the region in the near future.
As a result of the opportunities in emerging markets, the largest holding in the fund is in the Baillie Gifford Pacific Fund.
Gerald Smith, head of emerging markets at Baillie Gifford, said: 'Up to now, we have steered clear of countries with an urgent need for outside capital, and where we have invested within these countries it has largely been in companies that benefit from high real interest rates or a depreciating currency.
'We are now seeing increased availability of capital from some of these countries, notably Brazil and Turkey, as a result of the changes in capital markets. This is leading to firmer currencies and falling interest rates, and the possibility that we are now seeing the start of virtuous cycles.'
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