Equity market weakness prompts defensive stance for Royal London European Growth Trust
Tuesday, 8 April 2008
Kevin Lilley, manager of the Royal London European Growth Trust, sees further downside to come in equity markets, despite action being taken by central banks to alleviate the repercussions of the global credit crisis. He retains a defensive position in his European Equity fund with underweight positions in the Financial and Industrial sectors.
Kevin commented:
"In recent weeks, a number of market commentators have been suggesting that equity markets are forming a bottom. Whilst there have been a number of market friendly actions from the US and other central banks, it is difficult for me to see that a bottom is in sight until both US house prices have found a floor and stockbrokers' analysts become far more realistic with their estimates.
"It will need a co-ordinated effort from the Federal Reserve and the banking sector to halt the undermining of asset prices and this is clearly a long term project. It seems unlikely that US house prices will bottom out until 2009.
"On earnings estimates, the latest IBES forecasts for 2008 are still showing double digit growth for USA and 9% for Continental Europe. Typically in an earnings recession the downside from peak to trough is around 40% and lasts for over 18 months. This means that earnings estimates could well halve from here as the credit crisis widens into the broader economy, and as for timing, the bottom is likely to be some time away.
"In the Royal London European Growth Trust I retain a defensive stance in anticipation of worse economic news to come. The fund has a 10% underweighting* in Financial stocks, which I believe remain exposed to further losses as a result of the global credit crunch. The fund has a similar position in Industrial stocks, reflecting my belief that slowing economic growth, foreign currency headwinds and rising costs will lead to a cyclical fall in profitability. The fund is 5% overweight in the Oil and Gas sector, where I believe fundamental supply and demand issues will continue to provide support."
*relative positions versus the fund's index, the FTSE World Europe (ex UK) Index.
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For further information:
RLAM
Stephen Watchorn
Tel: 020 7506 6852
Stephen.watchorn@rlam.co.uk
Quill Communications
Jo Stonier
Tel: 020 7758 2230
Jo.s@quillcommunicate.com
Editor's notes:
Royal London Asset Management (RLAM) was established in 1988 and specialises in providing investment management solutions for both the Royal London Group and a range of external institutions. These include FTSE 250 companies, local authorities, universities, charities, wealth managers, financial advisers and private clients. RLAM manages over £32bn of assets (as at 29/02/08), employing more than 50 experienced investment professionals in our London based office.
Royal London Group
is a specialist financial service provider. Its businesses focus on those sectors of the market which value premium propositions, operating through a number of brands:
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Scottish Life – UK pensions market
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Bright Grey – UK protection market
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Scottish Life International – offshore investment markets
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RLAM – fund management
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RLAS – life and pensions administration
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Fundsdirect / Ascentric – funds supermarket; Wrap Platform
Royal London is the largest mutual life and pensions company in the UK with Group funds under management of £33.1 billion. Group businesses serve around three million customers and employ 2,620 people. (Figures quoted are as at 31 December 2007).