At present, stock markets around the world have seen positive gains since Christmas, but most fund managers are cautious about the future.
We have conducted reviews with several of our preferred managers recently and it is interesting (and heartening!) to see that despite different investment styles, it is the same things that are shaping their outlook.
Interest rates are probably the single biggest influence. Low rates are simply herding investors into the stock market, in the hope of dividends exceeding current interest rates. The risk of capital loss is being overlooked in many cases.
Perhaps more concerning though, is the disregard of inherent risk in other areas. For example, problems in the Greek economy are well known. Yet investors are prepared to trust this government for a 10-year Government Bond, all for a 2.4% return.
Technology stocks have now reached stratospheric valuations, particularly compared to the overall market, again prompting concern for managers who are focused on preservation of capital.
These managers in general see value in certain sectors of the market, but believe it will also be important to clearly identify those sectors and companies that are extremely overvalued, (or in some cases actually have little value!).
Market extremes can remain in place for long periods, so it requires patience and faith in the ability and discipline of the investment managers. In turn, the managers have all been willing to explain their strategies and portfolios to provide comfort that they deserve ongoing support.