The UK economy has registered its 60th quarter of continuous economic expansion, a remarkable achiev...
The UK economy has registered its 60th quarter of continuous economic expansion, a remarkable achievement that reflects wider global trends. It is this stability that has shaped recent investor attitudes towards risk, and what return they expect for a given level of risk, not just in equity markets but across all asset classes. In many instances risk is not being appropriately priced, and this is reflected in our portfolio positioning. When you take a look at the global economy, there are reasons to be cautious. The US sub-prime lending debacle is yet to fully play out, and this could have serious repercussions for the wider US consumer and hence the US economy. Closer to home, the recent series of interest rate increases have yet to fully impact the UK economy, yet once again pose a real threat to the housing market.
We retain a cautious outlook on the global economy, which leads us to seek structural rather than cyclical growth opportunities. Simil-arly, the pressures resulting from rising interest rates mean our funds largely avoid consumer-exposed sectors such as general retail and domestically focused banks. UK property yields offer insufficient upside for us at this time.
The sectors we are involved in tend to reflect our cautious macro outlook and preference for structural growth. For example, we have strong exposure to healthcare stocks, an area that offers exposure to several of our investment themes, such as 'population dynamics' and 'outsourcing'. In its most basic sense, people in the west are living longer, which alters their medical needs, and outsourcing provides a more efficient route to addressing these needs.
Media also represents a large sector weighting in the funds. It has lagged the market for several years, yet now offers several attractively valued opportunities. Our 'security' theme naturally leads us to have a strong sector positioning in the aerospace and defence sector.
Following four years of double-digit market returns, equity investors are now grappling with many of the macro issues discussed above, and this has been reflected in an uptick in market volatility.
We retain the view that equity valuations continue to offer opportunities from here, and we will focus upon our stock selection to deliver portfolio performance.
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