Take 'Machine Gun' to Stocks They Still Go Up: Investor
Associate Editor, CNBC
Despite "a machine gun" being taken to equity markets this year, the asset class' longer term poor performance has masked its considerable resilience, Guy Monson, fund manager at Sarasin & Partners, said.
Many stocks are still offering decent dividends, and the markets have managed to weather the extraordinary geo-political events of 2011 incredibly well, Monson told CNBC.com.
He believes that market volatility is just a fraction of the level seen in previous crises.
“The fact that we are seeing a flat, directionless, no volume market is a big achievement.
We are seeing an order and behaviour to the markets that is inconceivable to the likes of those that have lived through Lehman’s and the first Greek crisis,”he said.
“You’ve taken a machine gun to equities this year, we’ve had revolutions, oil at $120, the trauma of Greek debt, war, the nuclear and flood crisis in Japan and the end of QE2 and they have still gone up by 1 percent for the year.
“The message we are getting is that equities are extremely defensive. Tactically, we are heavily biased towards global equity income, our own global equity income portfolio, which has a net cash position for the majority of companies, if we do nothing we are up.
"We would like to see 15 percent earnings growth, double digit dividends, if you’re patient the markets will do surprisingly well,” he added.
Despite rising political uncertainty, fluctuating food and oil prices and the threat of higher interest rates not being classic indicators of strong investment markets, Monson believes that global blue chips should ride out this temporary slowdown while global growth rates are still powerful enough to support corporate profit growth.
He argued that European stocks still have favorable returns against other asset classes.
“If you can buy European equities they will have picked up most of their debt within a year. There is an extraordinary cash-flow risk - that’s what is really impressive about equities at the moment.”
The sovereign debt issue, while bringing significant volatility into the markets, should have little long term impact on European blue chips tier-one ratios.
He added that to ride out any further bumps in the markets the coming months should involve minimal selling and buying.
“You don’t want to be too clever, don’t fiddle with the portfolio in the next twelve months leave it alone.”