Credit Suisse and Hendersons are maintaining overweight positions in equities, in anticipation of a...
Credit Suisse and Hendersons are maintaining overweight positions in equities, in anticipation of a more positive stock market performance in 2003.
While bonds have been the better performers and less volatile products in the short term, managers believe equities will be a more formidable bet for long-term investment.
The Credit Suisse UK Strategic Growth Portfolio, in its active managed sector, showed a 54.2% equity weighting last June, and had ramped that to 57.5% by December.
Robert Burdett, co-head of multi-manager at Credit Suisse, says: 'We have started to see a positive rally in stocks that began in October. We expect an active trading market in 2003. There will be up-rallies but there will be setbacks too. Money can be made on equities in 2003 but you must look at the risks.'
Burdett says Credit Suisse will be pushing a strategy of overweighting equities at the expense of bonds in 2003.
Rupert Carnegie, director of research strategy at Hendersons, says the group is to remain overweight equities in 2003, a pattern which it began in July last year and reinforced in October.
The success of the equity market is dependent on the continued recovery of the US economy, notes Carnegie. He says: 'If the US slides back, we could have a very savage global recession, meaning bond prices would increase again.'
Carnegie identifies the fundamental threats to the US as unemployment, terrorism and the possibility of war with Iraq.
David Hambidge, investment director of pooled funds at Premier, says equities are looking very good value at the moment against government bonds, as is lower-rated corporate debt.
'Corporate bonds, BBB's and the high-yield sector are a good halfway bet. In relation to government bonds they are looking very cheap.'
'For equities in the short term, it is difficult to say what will drive the market up. In the long term equities are the place to be.'
John Chatfeild-Roberts, fund of fund manager at Jupiter, agrees: 'Bonds are a safer bet but if you take a more sanguine approach you will probably be all right with equities. There must be some form of growth coming through from the UK.'
The stock market has been down for the past three years, while bonds have steadily increased over the same period, notes Chatfeild-Roberts. However there is nothing to suggest this trend must continue and equities are worthy of consideration, he says. 'With the balance of probability you should get a reasonable return from those equities that are paying dividends. Investors should look forward not back,' he adds. Despite the positive forecast for equities in 2003, market watchers are still advising caution. Burdett sees the main risks as deflation, with a possible financial crisis in sectors such as banking or insurance.
Hambidge notes the main risks are to be found in the areas which are not always going to be easy to predict, such as the ongoing threat of terrorism and the prospect of a prolonged conflict in the event of war with Iraq.
Chatfeild-Roberts says: 'In an Armageddon situation bonds are a safer bet but if you take a more upbeat approach, you would probably be okay with equities.'
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