the GLOBAL GROWTH AND INCOME TRUST HAS GEARED UP TO 25% OF NAV
British Assets Trust investment manager Julie Dent expects equity markets to remain volatile, but said this is an opportunity for active investment managers.
The manager of one of the UK's largest global growth and income investment trusts, said volatility underlines the need to buy at the right level, noting the 'growth at a reasonable price' strategy popular with many management houses is coming back into fashion.
'We are now in a period of high volatility. We see that as an opportunity for active managers. We think a good stock-picker should be able to take advantage of that,' she said.
The value of equities versus bonds has fallen more than 50% since 1999. Dent said this suggests there is now value in equities, adding she believes the chances of 2003 being another negative year for equities is low.
Further evidence of the value in equities is the ratio of bond yields to equity yields, now at a 20-year low, she said.
The £476.7m trust has returned -24.0% over the 12 months to 28 October on a mid-to-mid basis, against a sector average of -18.1%.
Dent said the trust is structured to make the most of market recovery, with equity gearing of 25%, although investors should expect lower but steadier annual returns of about 7.5% in future.
'If you get a snap-back in markets we might get a bit more in the next couple of years, but that is the sort of return you should be looking at,' she said.
The 10-year annualised return on the S&P 500 is still above its long-run average of 7.9%, which shows the market is around a sensible starting point, Dent said.
'The 1990s was an aberration. We had an extreme outperformance of growth versus value, and that has now been corrected. The same is true of large companies outperforming small to medium-sized companies.'
From end-December 1999 to end-August 2002, the S&P 100 index has fallen 41.9%, but the other 400 stocks in the S&P 500 are only down 0.3%.
'That tells you there is no case for picking growth over value, or picking large cap over small or mid cap. The key thing going forward is to invest in the right companies. We don't think country allocation is that important at present,' she said.
Dent said market conditions are unlikely to reward top-down strategists, with more than 50% of returns attributable to stock-specific factors ' more than global market, local market and global sector factors combined.
'It will remain a tough economic climate. We don't think there is any great benefit to be had by picking one country over another. The US remains the driver of all markets and it is the individual characteristics of a company that will set it apart as a good investment,' she said.
The trust, currently yielding 5.9%, is well positioned to continue making dividend payments, with a substantial revenue reserve.
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