Holly Cook: Justin Urquhart Stewart of Seven Investment Management, we are here at the APCIMS annual investment conference. You are going to give a presentation that is entitled ‘Gain, Despite Economic Pain’. Why don't we look at the pain area first? The UK has just recently lost its AAA rating, does it matter?
Justin Urquhart Stewart: The AAA rating doesn't matter. These credit rating agencies have an amazing ability of telling you yesterday's news. I would have thought most of the (APCIMS) membership, in fact all of the membership would've realised that this was going to happen. So it was only a matter of time. We've lost some brownie points, now get on with it.
Note, what we have to focus on now is and this is where the gain really comes from, is that vital word that runs the economy, which is confidence. Because if you've got confidence, people go out and spend, companies will go out and invest, and that's how you actually get things going. And we need to focus on that area because there are a lot of positive elements in the UK economy. Sadly, that doesn't really necessarily always include the politicians though.
Cook: So how about – you've talked about the economy and you mentioned politics as well, what about the actual corporate scene, is it a relatively healthy outlook for the UK companies?
Stewart: I find it fascinating, because yes, you've got all of these the highlights from a lot of the media telling us what's wrong, but actually, you look at an awful lot of public equity companies, they are making profits, they're making reasonable margins, they are making and paying dividends and they are building up cash. But they are not investing. Why? Confidence, the same thing.
But if you go to the unquoted area, all those small- and medium-sized companies, you will find that last year we set up 420,000 new businesses in this country. We are not a nation of shopkeepers—Napoleon was wrong—we are a nation of small businesses. And those businesses, although a lot will die off, actually it’s a great run rate for the future of the British economy. But they too need that word again: confidence.
Cook: So from the point of view of the investor where roughly a decade on from the market trough in 2003, is there hope there, are we still looking at a sort of relatively confident outlook or what's the feeling there?
Stewart: Well the problem is, the poor old investor gets lots of negative news fed to him the entire time, from Italian elections to issues over what's happening with credit ratings and things like that. When in fact, we are four years off the largest financial explosion that any of us has ever known, and…shhh…the global economy is actually doing quite well!
So actually that's quite remarkable. So it's not going to be roses. We had 10 years of boom, and after 10 years of boom, you've got 10 years of lean, and we are halfway through it, there's another five years to go. It is a lost decade. That does not mean that everything stops. We start recovering, but it does take some more dynamic initiative and leadership from our politicians to give people that one word again, confidence.
Cook: So from the investor's point of view again, it's really still stock picking as kind of the name of the game?
Stewart: Well yes, to an extent. But this is where the [financial] industry also needs to realise, it has to evolve and change. If it doesn't evolve, then something will die, I am afraid. Because what do investors need to have, they need confidence. But they also need something which actually puts their investments into context, proper financial planning, making sure the reputation of the industry is enhanced.
Get moving away from all the areas of bad news that they've had over the years, so that they can just instill the one word that our industry should be providing to everybody, which is: trust.
Cook: Well Justin, thanks very much for joining me here at the APCIMS conference.
Stewart: My pleasure. Thank you.
