Equity Investors Too Optimistic

Bonds and commodities have outperformed developed market equities so far this year - a warning sign to over-optimistic equity investors

Emma Wall 29 April, 2014 | 4:48PM
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UK stocks have rallied this week – boosting equity investors’ confidence. But a sharper look below the lid of the FTSE reveals that almost all of that gain is due to just one stock – AstraZeneca (AZN).

The boom in the pharmaceuticals industry is hiding the truth: that developed market equities are not faring as well as expected. Small and mid-cap stocks in particular have come off this year, after two years of exponential returns. In 2012, the best performing fund was Standard Life UK Unconstrained, earning investors 44%. At the time, manager Ed Legget credited the fund’s 60% exposure to mid-cap shares. The specialist fund Neptune UK Mid Cap managed a return of 41% that year, while the Schroder UK Mid 250 increased by 36%. In 2013, smaller company funds such as Franklin UK Smaller Companies – which returned 51% - thrived.

Mark Dampier, Head of Research at stockbrokers Hargreaves Lansdown said that a stagnant 12 months often followed two stellar years of stock market returns.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
ASI UK Unconstrained Equity R Acc264.31 GBP0.69Rating
AstraZeneca PLC8,363.00 GBP0.00Rating
Franklin UK Smaller Companies A Inc  
Schroder UK Mid 250 A Inc2.48 GBP-0.20Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar