Mark Bennett, fund manager on Standard Life's Balanced Managed pension fund, has been increasing h...
Mark Bennett, fund manager on Standard Life's Balanced Managed pension fund, has been increasing his exposure to the US on the back of evidence the economy is heading for a soft landing.
He said: "Three to four months ago we moved from a light to a neutral position and now we have gone heavy in the US. There are several signs increasing our confidence that there will be a slowdown from profit warnings in the pharmaceuticals industry to Proctor & Gamble raising shampoo prices."
Bennett added that he was also supporting US assets to get exposure to the dollar despite the twin deficits of the current account and trade likely to be a drag on the currency in the longer term.
He said: "With the US so important as a global driver it all comes back to what happens stateside, whether you are looking at market direction in the Pacific Rim or UK interest rates."
Bennett has a 6% weighting in the US, overweight the benchmark, and is also overweight the UK at 55%. He has a 13.5% weighting in Europe and Japan. He is underweight bonds at 10% compared to the benchmark 14%. He is also underweight the Pacific Basin region.
He said: "It is hard to get excited about bonds with global growth reasonably synchronised and interest rates peaking. Pacific Basin markets have few internal drivers for their markets. Economic recovery is in place and there is lots of issuance of new equity, but this is going to go over 5% of market capitalisation which will be a drag on the markets."
In the UK, Bennett believes the big question mark is on the interest rate cycle.
He adds: "The big driver on the UK side was that, of all the mature Western markets, the UK looked most likely to have peaked and be set for cuts. Now we are witnessing a tight labour market, rising wage settlements and skill shortages increasing which has led us to change our view that there would not be another rate rise."
Despite changing his view in the last month on the direction of interest rates, Bennett is still overweight financials and banks, though he favouring the main high street banks as he feels they are benefiting from consolidation activity.
Mortgage banks are facing intense competition while Bennett feels retail banks are better placed to grow.
"They are also an interest rate play if you think the general trend is going to be benign," he said, adding that he was still negative on defensives such as food retailers but positive on media stocks.
Telecom stocks are a worry to Bennett, who feels that debt and funding levels will come under strain after the bidding war for mobile phone licences and general infrastructure costs. Bennett runs the £5bn Standard Life Managed pension fund on a low risk basis and is particularly wary of the markets at present.
He said: "At the moment the market is incredibly unforgiving with stocks that do not meet their estimates. A couple of months ago Nokia posted record earnings but concerns that its margins would come under pressure caused the price to drop 20%."
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