Market Will Move Sideways for 9 Months

In a sideways market you need to take active positions to grow your capital. Artemis manager Tim Steer explains how to make money when the market is going nowhere 

Emma Wall 29 October, 2014 | 10:00AM
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This article is part of the Morningstar's Guide to Active vs Passive Investing. Click here for our edit on how the experts use the tools at their fingertips, finding out whether you prefer one to the other and examining how to blend active and passive investing for profit.

 

 

 

 

Emma Wall: Hello and welcome to the Morningstar series, “Why Should I Invest with You?” I’m Emma Wall and here with me today is Tim Steer, Manager of the Artemis UK Growth Fund.

Hello, Tim.

Tim Steer: Hello, Emma.

Wall: How are you?

Steer: Good.

Wall: So, what’s going on in the markets at the moment because we've had a volatile couple of weeks, and in fact a volatile summer, it’s difficult for investors in the U.K. market to know what’s going on.

Steer: Extremely difficult at the moment. We’ve come to the end of quantitative easing in America. We’re coming to an end of QE in the U.K., European growth is slowing. Chinese growth is slowing. The oil price has taken a bit of a dive down, so a lot of uncertainty. And I just feel the market will probably move sideways for the next six to nine months really.

Wall: Why do these things that are happening outside of the U.K affect the FTSE?

Steer: Well, of course, the FTSE is full of overseas earnings stocks and what happens in the rest of world affects the U.K. and those stocks that are listed in the U.K. So what I have done in the fund recently is move towards U.K. companies with a more domestic focus.

In 2010, when I took up running the fund, we had a lot of stocks with overseas exposure, because the U.K. wasn’t a great place to be. Now since 2012 to-date we are very much focused on the U.K. domestic economy and of course, we know that U.K. is growing quite fast, certainly in comparison to many other European and other western economies.

Wall: They tend to be lower down the cap scale don’t they? They are more domestically-focused stocks are in the mid and small sector.

Steer: Yes, funny enough, you’re right, but we’ve got a lot of FTSE 100 companies in the portfolio, primarily because many of these companies at the bottom of the FTSE 100 used to be midcaps. They’ve done so well over the last three or four years, they have now gone into FTSE 100. So Ashtead (AHT), EasyJet (EZJ) are good examples of the kind of companies we own in the portfolio.

Wall: Is that a risk then because 2012, I mean, midcaps were the best performing sector across all classes, in 2013 they did well as well. Is there a sort of risk there that some of them are reaching full valuation?

Steer: Yeah, I'd agree with that. We have moved up the market cap in the last year or so, looking for yield, looking for dividends and better cash flow, rather than growth. I think there is a focus away from growthy type stocks to more yielding type situations or cash generative situations.

Plus what we have also done in the fund is we have got fair bit of cash at the moment, so this is a defensive type of strategy at the moment. And unlike most of my sort of 400-odd other competitors, we have got – we’re able to short stocks. So we can short up to 10% of the NAV of the fund in individual short positions and these obviously in this market at the moment are working pretty well for us. So, it’s of course, most defensive fund for the volatile situation we've got at the moment.

Wall: Tim, thank you very much.

Steer: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar