Premier global 100 manager ian rees broadens mandate despite expecting a blue chip rally
Although confident a recovery in investor sentiment will lead to a blue chip rally in the second half of the year, Premier Global 100 manager, Ian Rees, has broadened the fund's mandate in search of defensive stocks.
Rees said global leaders will lead the market up when sentiment recovers in the same way they led the market down amid concerns over the accounting practices of such mega-caps as Enron and WorldCom.
Although he believes the case for the globalisation theme remains sound, he has widened his mandate to look at the 120 largest stocks in the short-term, in the search for more defensive names in a bid to better preserve capital. These include food producers Cadbury Schweppes and Kraft along with one or two oversold technology names, such as data storage group ECM, as a recovery play.
The Premier Global 100 fund is benchmarked against an internally devised top 100 global companies ranked by total market cap, unlike the FTSE and MSCI indices which are based on free floats.
Rees said this ranks companies on an absolute size basis, which he believes provides a more accurate reflection of each stock's financial strength, brand awareness and market position.
'We think the market does underplay the importance of size and the dominance of some companies. For example, France Telecom is still 60% owned by the French government so only 40% of the market cap is free float. The company has been decimated over the past year due to its high debt burden, but the French government is able to support the company and maintain its credit rating and recently reaffirmed its commitment to the stock, causing it to rally,' Rees noted.
Many other telecoms and technology players, such as Sun Microsystems and Ericsson, have fallen off the fund's radar screen in the past three years, although the pattern is not geography-related.
Rees said the fund's holdings have been consistently 65% US equities and 17% European, although the UK has been gradually increasing as a proportion of his benchmark, due to the continued erosion of Japanese equity valuations and the more typically defensive nature of UK stocks.
Rees believes valuations among the top 50 US companies are finally reaching attractive levels on a P/E basis and any recovery in investor sentiment should lead to asset allocators switching out of bonds and cash and back into equities.
Despite having maintained a defensive bias over the past year, Rees is growing cautiously optimistic on the asset class.
'Liquidity has been sucked out of the market and large caps have been dragging the indices down until they have become incredibly good value. We did see some of this in the UK last year. While the FTSE 100 fell by around 24%, the FTSE 350 and small cap indices fell further,' Rees said. 'We have not seen that in the US yet except in the top 50 stocks of the S&P 500, which are showing value now. I do feel that as soon as the market has more confidence later this year after the Iraq situation is sorted out, liquidity will return to the equity market and there will be large inflows into blue chips.'
Over the three years to 27 January, Premier Global 100 has returned -51.8% after charges, compared to a Global Growth sector average of -42.6%.
Staying invested could prove lucrative
Consider lasting powers of attorney
Less environment, more governance threatens to undermine firms' green credentials
Evidence your compliance