manager of morgan stanley quilter global growth fund derek larcombe predicts market recovery on the back of rising corporate activity
Fund of investment trusts manager Derek Larcombe sees rising corporate activity as the catalyst for a market recovery.
Larcombe who runs the Morgan Stanley Quilter Global Growth Fund, has been building up his exposure to global small caps, the area he believes is most likely to benefit from an upturn.
He likens the current situation to that which followed the Asian financial crisis in 1998, when a number of trusts went to discounts of 30%-35%. At the time Larcombe built up an 18% exposure to Asian holdings in preparation for the bounceback that followed.
Larcombe noted that at the end of 1998 there was a massive sell out of small companies, that then became very cheap and it was entrepreneurs who began looking at the potential in the market.
He feels that this may repeat itself, that private venture capitalists are willing to buy in, and corporate activity is beginning to come through again.
Larcombe sees active entrepreneurs as a key driver at the moment as opposed to the investment industry where activity is stagnant. 'Once this venture capital activity starts to happen it will drive up prices and the market again,' he said. 'Economic fundamentals in the UK over the past three years have not been that bad but yet the stock market has been terrible.'
As of January this year Larcombe's fund was spread between 40 underlying holdings.
He said: 'The key is to identify sectors people are panicking over. What I do is invest in investment trusts and investment companies. I trade investment trusts from a bottom up approach. I look at discounts, which tend to come in particular sectors which are out of favour.'
His contrarian stance has not produced outperformance in recent times. The £45.9m Quilter Global Growth Fund has returned -58.7% after charges over the three years to 31 March, against a Global Growth sector average return of -47.4%.
Larcombe, who has managed the fund since its lunch in 1990, said he had held too high an exposure to zero dividend preference shares in recent years. He added, 'the gearing effect can be devastating in certain market conditions.'
Looking forward Larcombe said he does not perceive the market has the potential from this point to fall as far as it has done since 2000 but he would not call the bottom of the equity market. He did observe that at present, sentiment is so negative that investors have lost all their confidence in the equity market. Over one year the portfolio has returned -46.6% after charges against a sector average in the 161-strong peer group of -30.7%. This gives the fund a ranking of 158.
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