With a more positive view on world equity markets, RSA Investments is retaining an underweight posit...
With a more positive view on world equity markets, RSA Investments is retaining an underweight position in the UK market.
Martin Clements, director of asset allocation at RSA, says: 'On one side, UK valuations are not expensive. The UK is a defensive market and our preference at the moment is to become more aggressive in our asset allocation plays. We are not advocating a very aggressive switch but we are seeing a general move from the defensive areas into the more cyclical areas.'
RSA believes there is a better chance of appreciation overseas than in the UK. Clements says: 'My own preference is that we will see the US economy leading first. If that is so, one might hope to see appreciation in the Far Eastern markets. While Japan may be going through an awful time in its local economy, historically its stock market prices can take the lead from the US economy.'
Clements adds that the expected recovery in earnings may disappoint in the pace of the recovery. However, overall he is choosing to take a more optimistic line.
Rob Burdett, joint head of multi-manager services at Credit Suisse, says although the group's new portfolio does not go live until the end of the month, the house view is one of a neutral to underweight position in the UK, depending on the aggressiveness of the strategy.
He says the reason for this slight defensive sitting comes from two drivers. Firstly, the internal driver, which is the disappointment in corporate profits and/or analysts downgrading future earning expectations. Counter to this is the external influence, which is the flexibility in the monetary policy to keep the UK economy turning over and reflate it if possible.
Burdett says: 'On one hand you have got the illness and on the other you have got the medicine. There is a mixed view at present. Corporate data is coming through which points to a slowdown but consumer data, such as rising house prices, points to a more positive view and could prevent the monetary policy committee cutting rates sooner rather than later.'
Burdett says he would like to see another month's data before taking a more overt stance compared to the benchmarks.
Matthew Merritt, global equity strategist at SchroderSolomonSmithBarney, says the UK is generally considered a defensive stance in portfolios. The UK beta to the World Index has remained stable and below one for a decade. Sectoral composition is an important factor in this, with a low weighting in information technology, offset with higher weightings in banks, pharmaceuticals and energy.
Merritt says since global equity markets reached their mini-peak in mid-May, the UK index has declined by 9.4%, despite the relative resilience of the UK economy.
However, he adds: 'When compared with the 10.1% decline for the World index and the 12.4% decline for Europe ex-UK, the defensive properties of the UK market have persisted during the latest correction phase. Consistent with our constructive view on equity markets, we retain our underweight position.'
House prices are rising.
UK economy is resilient.
Cyclicals look attractive.
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