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Opportunities in a low return market
"The market is benefiting from loose monetary policy but investors are acting as if this policy will continue for the foreseeable future."Investors should separate what's going on in the UK economy from what's going on in the financial markets, says Credit Suisse Asset Management (CSAM).
The economic outlook is relatively benign and would need an extraneous event to damage this positive scenario, but financial markets could easily be undermined by interest rate rises.
Commenting on the market, Leigh Harrison, Portfolio Manager of the Credit Suisse Income Funds, says:
"The recovery in markets over the past two years has been fuelled by interest rates that have been kept low to stimulate economic growth. But now that growth is well established interest rates are rising, increasing the risk in markets. We are not negative, just cautious that investors are pursuing high risk strategies in an environment when rising interest rates suggest a lower risk strategy is more appropriate.
"The catalyst for a change in risk appetite is difficult to identify but the likelihood of risk appetite increasing from here is small, therefore it is right to be shifting to a lower risk strategy. We are actively looking to increase our exposure to reasonably valued growth stocks which should benefit if market conditions deteriorate. We also continue to favour companies with strong cash flow and the ability to return that cash to shareholders through increased dividends or share buy backs. Further, in a market in which corporate activity has been picking up and the economic outlook remains stable, special situations are also likely to continue to feature; either businesses beginning to recover or where a new management or strategy is improving the fortunes of a poorly performing company.
"We are happy to be in the market and remain positive, but with the market pushing up to new recent highs, we are keen to increase our exposure to lower risk equities."