SVM UK Absolute Alpha has grown to GBP12m since its launch on 7 April 2009 and the unit price is up 3.9 per cent.
SVM UK Absolute Alpha has grown to GBP12m since its launch on 7 April 2009 and the unit price is up 3.9 per cent.
Colin McLean, fund manager of SVM UK Absolute Alpha (pictured), says 2008 saw several false dawns – bear market rallies that even deceived some high profile investors.
SVM currently favours banks, mining and selected industrials whilst remaining negative on business services, utilities and several consumer businesses. Currently positioned with a net long stance, the fund can benefit from improving sentiment, while controlling its exposure to setbacks.
According to McLean, some key economic indicators now point to a more powerful and sustainable rally than those of 2008. Stock-building of metals and other commodities by China has lifted mining shares from extremely oversold levels. While there is still a lack of clear confirmation from credit markets of a new bull market, there are other favourable signals.
The huge scale of US and European bail-outs of industries such as banking and autos has provided unprecedented stimulation to Western economies, says McLean. While the recovery in bank profitability falls well short of what is needed to repair damaged balance sheets, the problems may not be revealed till 2010. Governments and regulators are willing to put off the day of reckoning for banks, in terms of reflecting impairments via market valuations. Stockmarkets and consumers have been primed to receive just good news. This has undoubtedly improved confidence, even if it is not the stuff of a multi-year bull market, says McLean.
Many industrial companies have already completed significant cost cutting. Restocking is quickly feeding through into recovering profits. Quantitative easing by the Bank of England has supported insurers and investment banks via bond purchases, helping them to finance new capital raising by distressed companies.
McLean says SVM UK Absolute Alpha Fund has been able to take advantage of some of these opportunities, whilst retaining a negative stance on businesses where problems are less easily resolved. Some challenges – for example, in media – are not cyclical, but reflect broken business models. Consumers are moving more activity online, impacting print media and the high street.
McLean says stockmarket signals are mixed. Although confidence has improved, consumer sectors still face the challenges of rising unemployment and a need to increase savings rates. Day-to-day share price volatility seems likely to remain high. The SVM UK Absolute Alpha portfolio is currently 50 per cent invested and is being built up cautiously, recognising the risks in the continuing economic turmoil.
