Thursday, June 14 2012
Dalton Nicol Reid’s CEO believes markets have priced in a significant amount of bad news already.
“For stocks to rally the news does not have to be that good, it just needs to be less bad. Internally we recently ran through what could go right given significant space is currently being devoted in headlines to what could go wrong,” said CEO Harley Dalton.
“The Dalton Nicol Investment team believes markets are dislocated at the moment, with a massive move to so called “safe havens”. However Australian 5 year bonds offer a yield of approximately 2% which is less than inflation. Banks are yielding over 10%. The banks could fall 40% over five years and you would still be better off in the banks,” said Dalton.
“Secondly, the cash rate is at 3.50% and likely going lower. In our experience we have never seen it lower relative to the dividend yields on offer in the market.
“Defensive assets are becoming crowded and while they are likely to remain attractive while there is talk of a Greek exit from the Euro, the returns on offer in return for that safety do not look compelling,” said Dalton.
According to Dalton, the question needs to be asked: what could go right?
“Markets are pressuring political leaders to undertake the necessary policy solutions to shore up confidence,” said Dalton.
“In Europe there are a number of potential catalysts that could emerge which would create an environment which is “less bad” than at present: This includes; the Greeks vote for continued austerity and to stay in Euro; A deposit holders insurance scheme across Europe to avert bank runs; Further quantitative easing; Agreement across fiscal union including an independent authority to assess budgets and the recent agreement to recapitalise the Spanish banks.
“In China they have flexibility to stimulate the economy, via interest rate drops; a loosening of credit reserves requirements and further fiscal turmoil. All of which we believe will benefit the resource sector.
“In the US we are seeing growth despite recent unemployment data being disappointing. The economic growth is largely being driven by internal investment and consumption which looks more sustainable than many economies,” said Dalton.
Dalton Nicol Reid’s flagship High Conviction portfolio, a style neutral, concentrated Australian share portfolio has outperformed the ASX200 Accumulation Index by 3.4% since inception in 2002. According to Morningstar the portfolio is the only long-only Australian share manager to achieve positive outperformance every calendar year for the past 9 years; The Income portfolio is yielding 8.5% an outcome Dalton claims is a result of “concentrating on buying quality assets and remaining true to label”.
Dalton Nicol Reid is an independent Australian investment manager that delivers client-focused, quality investment solutions to institutions, financial intermediaries and high net worth investors.
|IMPORTANT NOTE: This information has been prepared by DNR AFSL Pty Ltd ABN 39 118 946 400, an Australian Financial Services Licensee, Licence Number 301658. Whilst, Dalton Nicol Reid has used its best endeavours to ensure the information within this document is accurate it cannot be relied upon in any way and recipients must make their own enquiries concerning the accuracy of the information within. This document is not intended to provide you with personal advice and in providing this information, Dalton Nicol Reid has not taken into account your particular investment objectives, financial situation or needs. You should assess whether this information is appropriate for your particular needs, either by yourself or with your adviser. Dalton Nicol Reid expressly disclaims any responsibility or liability to anyone who acts or relies upon anything contained in, or omitted from, this document. Past performance is not indicative of future performance. Total returns shown are based on Dalton Nicol Reid’s model portfolio and have been calculated before taking Dalton Nicol Reid’s fees into account. No allowance has been made for taxation.|