Investors can find better value outside the US, particularly in emerging markets
Global equities have continued to rally on the back of improving investor confidence in global economic recovery and the prospect of low interest rates for a sustained period. However, value is difficult to find in the US, with better opportunities to be found in Japan, Europe and emerging markets.
Global equities have been supported by investor confidence in the prospects for a pick-up in global economic activity with the world"s largest economy, the US, releasing stronger data. In addition, interest rates are expected to stay low for a sustained period. However, value is hard to come by in US equity markets although there are good long-term investment opportunities in smaller companies.
Investors in Europe have been encouraged by improving global economic news, although Europe itself has not seen as marked a turnaround. Economic data remains weak although European share prices should gain from further rallies in global equity markets and low interest rates.
We are focusing on stocks that offer value and hidden growth potential - opportunities not yet recognised by the rest of the market. We look for companies operating in areas where competitive barriers are high and those with a strong brand and market position with potential to build market share. Financial strength, including high returns on capital invested and strong free cashflows, is also an important consideration as these companies should provide healthy returns to investors in any economic backdrop.
The Japanese stock market has risen significantly recently, with buying from foreign investors who anticipate an upturn in the Japanese economy providing support for the market. We are focusing on good quality companies with strong balance sheets, which are leading the process of corporate revival in Japan. Companies with strong finances are able to engage in restructuring and cost-cutting - which can be an expensive process. Our quality bias is the right strategy both for the exposure it gives us to restructuring, and for valuation reasons. Good quality stocks are on attractive valuations, while the lower quality stocks more geared into economic recovery have been driven up to valuations which are pricing in unrealistic growth expectations. We are positive on the outlook for the Japanese market.
Emerging markets have been driven up by increasing investor confidence in macro-economic conditions. Improving news on the US and Japanese economies has been particularly supportive. The strengthening trend in commodity prices in anticipation of higher global demand is also helping those emerging markets which are major commodity exporters. Despite the substantial rise we have seen this year, we believe there is potential for emerging markets to continue to outperform other markets due to low valuations. We have been adding to our exposure and have a bias towards good quality growth companies, including economically sensitive sectors such as technology.
Schroders Group Asset Allocation Committee
Staying invested could prove lucrative
Consider lasting powers of attorney
Less environment, more governance threatens to undermine firms' green credentials
Evidence your compliance