Looking To The Future
This time we thought we‘d bring you someone else‘s insight on markets, instead of our own: Dr. Bill Mott (the former manager of the Credit Suisse Income Fund), who, along with some of his former colleagues, moved to PSigma Investments, where he now manages the new PSigma Income Fund.
Despite only being launched in April, the fund has already raised over £130 million. So when Chartwell met with Dr. Mott earlier this week, we were keen to find out what one of the industry‘s most respected fund managers had to say about his fund, but also about the state of equity markets in general.
Mott is a thematic investor, in that he aims to identify the driving forces (themes) behind the economy, believing that at a stock level the market is too perfect – meaning that it is difficult to identify real value though stock picking alone. According to Mott, as an investor it is important to be able to “spot when the future is different to the past”. He argues that it is human nature to suppose that past events are an indicator of what will happen in the future; however, the trick is to be able to identify when the landscape is different, and what has happened previously will not necessarily be repeated. Mott refers to this as an ‘inflection‘ point; and actively looks to identify what may trigger such an inflection point.
Dr. Mott views the rise of China and India as such an inflection point, and believes that the vast number of new participators in the global economy has fundamentally changed the economic landscape. This has helped create an environment of low inflation and low interest rates; and has been assisted by sensible policies from central banks. He also believes that, broadly speaking, this is set to continue for around 20 years – or until the new workers in the developing world are integrated into the global economy.
For the UK, Mott is concerned that the small and mid-cap sector is overvalued; and he sees the value lying in the large-cap sector (more particularly the top 20 or so FTSE 100 companies). In this respect Mott sees there being a convergence of factors leading to an ideal investment point, namely, where the stocks with the best potential for growth are also the lowest risk. He likens this concept to the technology stock bubble of 2000. At the time, everyone was investing into tech stocks and ignoring the large, safe stocks; however, as we now know, tech stocks fell off a cliff and the nice, safe investments held their course and eventually enjoyed the equity rally in 2003. In March 2000, Mott switched the Credit Suisse Income Fund he was managing at the time out of tech stocks and into safe and more cash-rich companies. In the same vein, he currently has over 70% of his PSigma Income Fund invested in the top 20 FTSE companies.
Interestingly another reason why he favours the larger-cap stocks is that he thinks there is the possibility that big savers, who have traditionally favoured cash, will start to invest more in equities. Specifically he‘s talking about China, where the central bank has just started to make tentative steps towards investing in equities. Dr. Mott believes that when they do invest, they will be buying the likes of Vodafone, BP and British American Tobacco as opposed to the mid and small-cap stocks.
Finally, Mott made an interesting comment in relation to UK interest rates. He described the Governor of the Bank of England, Mervyn King, as something of a ‘hero‘ of his and that UK rates are likely to be near their peak (though a quarter point rise is still likely). King, Mott believes, has been steadily increasing the cost of borrowing and trying to cool the UK consumers‘ appetite for cheap debt, but that this cycle may be nearing its close and King has largely achieved a ‘soft landing‘. He thinks King has been keen to raise the ‘real‘ cost of borrowing – that is the cost of borrowing, which takes account of inflation. From an inflationary standpoint, however, workers do not seem to be demanding large wage increases, which brings us back to China and India, because as we well know, its not so sensible to demand a hefty wage increase if you know there‘s 10 million people in South Asia who can do your job for half the cost.
Bill Mott‘s PSigma Income Fund is available on theinvestorcentre through Chartwell, with an initial charge of just 1.0% (standard initial charge is 5.25%) and qualifies for our Cashback Service and can be purchased online via Chartwell‘s theinvestorcentre.com.
[The views expressed in this article are those of the subject and do not necessarily reflect the view or views of Chartwell Private Client Ltd, its subsidiaries or associates]