Martin Cobb, manager of the Franklin Templeton Investments UK Equity fund is this afternoon waiting final approaval of the OEIC before hitting the button to start trading.
UK Equity will be benchmarked against the FTSE All Share, but Cobb says he will only be investing an average of 2% to 2.5% of the fund in each of the roughly 45 stocks he sees being in the portfolio.
"It’s not like a Dynamic fund," he admits, "it’s more something that takes the Franklin Templeton (FT) global group style and filters it down to the country level."
Among other things, this means the UK fund will reflect the FT way of taking a five-year view and picking stocks from the bottom up.
Cobb says the UK market is still full of opportunity, albeit prices are now "not cheap but not expensive – although I don’t want that to come across as if I’m sitting on the fence."
The reason for this view is partly technical, he explains. Share prices are expected to keep increasing slowly from current levels over the next few years, but what is changing is that buying and selling positions are becoming more volatile.
"The market is increasingly dominated by short-term factors," he says.
"People are finding it harder to take pain, even though you would have thought they might have learned something from the past few years.
"The fear and greed trigger is being squeezed quicker."
The UK market should rise from current indices levels in a way different from last year. The issue for many now is prices against earnings expectations, but against the background of good yields and defensive properties supporting total returns, Cobb says.
LogicaCMG and Aegis had numbers in line with expectations, but the prices are weak because of what analysts expect looking ahead. WPP has had £1 knocked off its price since its recent highs because it is not taking a hugely optimistic view of the year ahead.
Contrast that with stocks such as Unilever and Reed Elsevier, which are less highly geared, so will better stand up to any weakness in market sentiment towards cyclicals.
BT Group is another example of a stock "that has been unloved for several years now," but which offers a good yield, good cashflow, and has got its debts in order.
Cobb agrees with the view put forward by many other asset managers, that the FTSE 250 will not be able to outperform the FTSE 100 to the same extent this year, but with a caveate.
The point of the big-caps index is it is dominated by Shell, BP, Vodafone, HSBC and GlaxoSmithKline, thus good total returns are possible at the individual stock level even if the index is pulled down by, for example, oil price issues.
Thus, individual big-caps should be able to participate in any market upside, but with the added benefit of defensive qualities, he says.
Cobb is also not overly concerned with the dollar exchange rate against sterling and the euro. In fact, he says he was "surprised it didn’t overshoot on the downside even more."
Current account deficits can be carried for a long time, but that will not stop him holding dollar exposure through the UK stocks in his portfolio.
Cobb is not expecting any big surprises in the Budget on Wednesday this week, but does say crowding out is becoming an issue, especially with stories of more managers than nurses being created in the NHS by increased public spending. Again, however, it is not something that the market cannot deal with.IFAonline
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