Martin Cobb, manager on the Franklin Templeton Investments UK Equity OEIC says pension fund issues may cause considerable problems in evaluating UK companies.
The issue has been bought to a head with the recent collapse of an acquisition deal for newsagent WH Smith.
The deal fell through when the bidder walked on finding out about company pension fund liabilities.
”I don’t know what to do about this,” Cobb says.
The WH Smith case showed trustees to have powers most people thought they did not, Cobb adds, and he believes the issues raised by that case will rumble on in the investment community until new rules come in on A-Day.
Otherwise, Cobb is also concerned about the UK “recovery” being put about by government, the Bank of England and others.
”What are we recovering from?” he says. Unlike most other industrialised countries, the UK never went into a strong recession during the equities bear market, which means fewer poor performers have gone to the wall.
It is also a problem for cyclical stocks, which although their share prices may have gone up more than the stock market has recovered, have less reason to continue climbing.
The argument is if there was no recession, why should cyclical stocks perform as well in the UK as in countries where economies did worse.
A wider problem for all UK listed companies is how they will be able to pass on increasing input costs to customers, particularly retail customers used to level or falling prices.
However, there are some good stock-specific stories.
Cobb expects Next and Tesco to continue doing well. Two of the big five supermarket chains have reported financial trouble - Sainsbury and Morissons - but Cobb believes Tesco will not follow in their footsteps.
Home builders such as Bovis are another good bet, he says, because despite rising interest rates companies in the sector have managed their land banks far better than at the time the property market collapsed in the early 1990s.
On the other hand, banks may well suffer from higher interest rates, because fees linked to all the ancillary services offered along with mortgages, such as life assurance, home and contents insurance, and so on, will fall as the housing market cools.
Dignity, the listed funeral director, should do well, Cobb adds, but momentum investors should expect no help from the FTSE, which is expected to continue going sideways.IFAonline
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