In the less than robust current economic climate, ABN Amro says growth stocks are the best bet for the short and medium-term.
ABN AMRO Europe Equity Growth fund senior portfolio manager Arjan Palthe says if confidence in equity markets improves, growth stocks will prosper.
“When markets rebound, we believe that people will first buy the larger, less risky stocks because they will still be cautious about the markets,” he says.
“In that climate, stocks of quality companies with a proven track record of delivering profit growth are likely to outperform,” he argues.
Palthe predicts the healthy recent European profit growth to begin to decline.
“In the more cautious economic environment ahead, we expect investors to seek out companies with a business model (or exposure to certain industries) that allows them to outgrow the market in terms of earnings growth,” he says.
“We find that such companies have exposure to developing markets rather than to more mature markets such as the US.”
Palthe favours industrials and capital goods companies, especially those exposed to Asia, China in particular.
“In China, there is a boom in infrastructure and factory building,” he says.
“Considering the economic expansion there, this industry group is likely to continue providing excellent returns for a number of years.”
Commodities such as energy and materials are another area to look at Palthe says, while he has not given up on the recently hammered banks and insurers.
“We are starting to look into financials now, as it has underperformed the broader market, and valuations are becoming increasingly attractive,” he says.
To comment on this story, contact:
0207 034 2681
Plus worked example
Risk-profiling tools have provided a framework for advisers to manage client expectations but, writes Chris Fleming, key issues persist that have varying levels of implications for advisers and clients
100 new clients
Achievements, charity work and other happy snippets
Square Mile’s series of informal interviews