Global mid- and small-caps are expected to outperform this year, as the anticipated world market rec...
Global mid- and small-caps are expected to outperform this year, as the anticipated world market recovery draws ever closer.
Ian McCleish, manager of the Scottish Investment Trust, is overweight small- and mid-caps on a global basis, believing there is more value to be found in this market, with blue chips looking fair value at best.
McCleish is bullish on the outlook, leading to a gradual repositioning of the fund to a more aggressive stance. He says: 'We are not targeting sectors so much as individual companies and we are seeing value in mid-caps with opportunities, particularly in the US and the UK.
'We have got 14% gearing at the moment and the capacity to increase that. We have been moving into more sensitive areas of the market, such as construction and getting out of many of our defensives such as utilities.'
Given the size of the Scottish Investment Trust, McCleish is gaining much of his exposure to small- and mid-caps through buying stakes in specialist investment trusts. The fund is overweight Europe and Far East ex- Japan and underweight the UK and the US. McCleish anticipates strong performance from the Far East excluding Japan in particular, with a number of the region's economies, including Korea and the People's Republic of China, set to continue their upward trajectories.
He notes: 'I think the Far East ex-Japan will perform well as it is highly leveraged to the US, and Singapore and Korea continue to do well. The region has attractive valuations to growth, although we are sticking to the its more developed markets.'
Andrew Milligan, head of global strategy at Standard Life Investments, says SLI is overweight the US, UK, European and Pacific Basin equities, neutral weight Japan and underweight Latin America. Milligan says the Far East ex-Japan has benefited from the more positive economic newsflow out of the US.
High beta technology stocks have rallied on the back of revelations about vanquished inventories across the Pacific, of which Milligan has taken advantage.
He says: 'Stock prices will continue to benefit as the upturn in the technology cycle gathers momentum and we remain overweight in this sector. Several Asian countries are highly geared into a recovery in electronics, even if they have few listed technology stocks. As a result, we are also positive on cyclical stocks in Singapore and the Philippines.'
Milligan is underweight Japan, seeing little upside in the stock market and a weakening yen to boot. That said, he has taken profits from the recent global technology rally and expects further consolidation in the country's pharmaceutical sector.
Both expect the continental bloc to outperform in 2002, driven by recovery from across the Atlantic. McCleish favours cyclicals and retailers, while Milligan, who agrees on cyclicals, is also bullish on banks.
Milligan highlights changes in Germany's corporate tax regime as another possible driver behind the region's potential for outperformance.
The previous tax regime had led to many sectors, such as industrials, selling at a discount and could lead to re-ratings. The changeover will also require many firms to seek advice on the changes, providing a stimulus for the financial and legal sectors, he adds.
Small- and mid-caps to outperform.
Far East ex-Japan to post strong growth.
Recent rally in global technology.
Japan remains mired in problems.
US blue chip valuations look high.
Near-term volatility set to continue.
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