manager of £1bn mixed pension fund andrew november positions portfolio for recovery in global economy and predicts bond yields will rise
Scottish Widows is positioning its £1bn Mixed pension fund for an imminent recovery in the global economy and is becoming increasingly bearish on bonds..
Andrew November, manager of the portfolio, believes the global economy will start to recover during the second half of this year, and while growth will initially be muted it should be on an improving trend during 2004.
At present the fund has 10.7% of its assets invested in UK fixed interest. After a period of strong performance by bonds, November predicts yields will rise and prices fall as the global economy proves to be a lot stronger than consensus expectations.
Despite the US being acknowledged as the powerhouse of the global economy, November is bearish on North American equities and much prefers the domestic market.
While he sees the US and UK economies as correlated it's the latter's stock market that he expects to produce the best returns as economic growth picks up. The Scottish Widows Mixed Fund has just 4.6% exposure to North America, a 2.5% underweight against its benchmark, the Lipper Balanced Managed Pensions index.
November feels the market is expensive and earning expectations for the next few years are too high.
By contrast he has a 55.7% exposure to UK equities, a modest overweight against his benchmark. Despite his expectation of the UK outperforming the US, he remains cautious and has been cutting back his UK weighting marginally.
Should domestic equities fall any further November said he would build up his exposure to 60%.
The portfolio is running a 7.3% cash weighting which November is looking to invest on market weakness.
He added: 'The fund is reasonably neutral in terms of sectors and I look to focus on the best individual stocks. We are very bottom up driven and the type of stocks we are positive on are ones, which we see as better value and which we think will outperform.'
November has been buying into Northern Rock of late and within the finance sector he also likes Royal Bank of Scotland. In the retail sector he prefers Next to Debenhams.
Despite the present uncertainty in Japan and the Far East, because of the outbreak of the Sars and its impact on the economies, November said that once the virus is contained, there is plenty of potential. He added there is value to be found in stocks and a good scope for a market bounce there.
The fund has a neutral weighting against its benchmark of 8.8% in Europe. From a top down and global perspective the region appears cheap but November is struggling to find specific stocks he wants to invest in.
'The main issue is we see a lot of balance sheet problems in Europe. We do not favour some of the large caps such as some German banks, and companies such as Deutsche Telecom and France Telecom. We focus on firms,which are not constrained by bad debt, such as groups like Nordea and Irish Life,' he added.
He is positive on commercial property in the medium to long term and at the moment has 1.9% invested directly in it throughout the UK but noted he was underweight in London offices.
He said that over the next 12 months the sector may have problems with yields rising because they have been weak but that in the long run he expects to see returns from the sector.
The fund, which was launched on 1 July 1981
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation