Defensive equities remain the asset class of choice to perform in the three most likely economic scenarios, Bill Mott, a fund manager at PSigma, has claimed.
His PSigma Income fund is overweight in economically insensitive, strong cashflow sectors such as telecoms, utilities, pharmaceuticals, tobacco, food retail and consumer staples.
Although the world is about to embark on what Mott calls “the biggest financial experiment in history” with more quantitative easing, he said it is possible to build a fund able to thrive in different conditions. (article continues below)
His vehicle will do best in what the PSigma team considers the most likely outcome – anaemic recovery with gradual global rebalancing – but can also withstand inflationary or deflationary conditions.
“We believe equities remain a worthy asset class in this uncertain environment but do not want to jump on the bandwagon of momentum, “ adds Mott.
“We do not want to charge into commodities or other obvious ways of playing emerging markets because we might not be able to get out before the music stops. We much prefer to hold defensive equities that should participate in any rise in markets generally but should not be destroyed by either a global deflation or inflation.”
Overall, the manager says it is remarkable how many solid companies are not being rewarded by the market for their achievements, results and prospects. In telecoms, for example, BT and Vodafone are both on an improving trend, but their share prices have only moved up recently.
Mott says if global rebalancing is achieved successfully, it will be accompanied by anaemic growth as structural changes to economic models worldwide cannot be achieved overnight.
“Clearly this is the most favourable outcome as it will allow economies and asset prices to adjust gradually to the new normal,” he says.
“Once again, it should be those defensive equities delivering everyday necessities to the growing global population that should be the asset class of choice.”