Parts of the UK equity market offer "sensational value" on a medium term view as long as the Bank of England and Central Bank act appropriately, fund guru Bill Mott says.
The manager of the PSigma Income fund says there will only be a prolonged period of equity market weakness if the economy is mis-managed by the Bank of England, including a failure to aggressively cut interest rates.
Commenting on his fund in the current climate, Mott says: “The yield on the underlying portfolio is now similar to that available on ten year government bonds. During my career, this has only been the case on two or three occasions and each time it has been a great buying opportunity.
"It is only under the ‘twice a century’ Armageddon scenario that equities are not good value. In addition, attractive yields are available in many areas of the market.”
His fund remains overweight in financials and domestic cyclicals on the basis that UK interest rates will have to be cut aggressively. The fund, which has 95 holdings, currently has a +2.3% relative overweight in banks against the index.
“We continue to view the banks as offering excellent long term value but accept short term sentiment is very negative,” Mott says.
He also has double the index weighting of 3.5% in the life sector as he believes yields here are very attractive and recent results have been good.
He says although the UK life sector has insignificant exposure to toxic financial instruments, the sector has been a very poor performer. Overweight holdings in this area include Aviva, Legal and General, Prudential and Standard Life.
The largest underweight in the fund against the index is in mining companies where the fund has virtually no exposure against an index weighting of 11.5% due to the lack of available yield.IFAonline
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