Recent market volatility presents a longer-term buying opportunity for investors, according to Baring Asset Management.
Charles Deptford, manager of the Baring equity income and UK growth funds, says equities have benefited from support provided by takeover activity and interest from venture capital firms and other corporates.
“That support is not going to go away unless there’s a major change in market conditions and deterioration in global economic prospects,” he says.
Deptford says equities were not expensive before the market declines when valued on forecast earnings and now, compared with all other assets classes, they still offer good value.
He admits there are downside risks which could arise if interest rates soared above what the market has factored into prices. However, the outlook is largely positive, he says.
The Baring equity income trust is most overweight in financials and its holdings include fund management groups, firms providing finance for venture capital companies and consumer lending companies.
Stocks in that area include Aberdeen Asset Management and Provident Financial.
However, Deptford also likes the life and non-life sectors because he thinks insured premiums will remain buoyant and possibly even strengthen.
He says: “We haven’t had a significant catastrophe season since the US hurricane season last year and therefore companies are making a lot of money at the moment, which should translate to higher earnings and dividends.”
The Baring equity income trust has high exposure to the retail sector and currently features stocks such as JJB Sports and Home Retail but is underweight in oil and mining, with natural resources being the biggest underweight sector.
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