Thu, 21/01/2010 - 06:00
Bloxham fund manager Pramit Ghose (pictured) is bullish for 2010 and predicts possible double digit total returns as potential for global income stocks rise.
Within our global equity income portfolios we currently hold a basket of high yielding stocks – these range from inexpensive large cap defensive names, including Nestle, Procter & Gamble and Diageo, to large cap high quality cyclical plays like BHP Billiton and US home improvement company Home Depot.
This basket of stocks is currently yielding 4% - but I believe we can grow the dividend stream by 7% or more in 2010. Overall total returns may well be double digit.
Now we are into the new decade it is instructive to take a moment to assess what happened in 2009.
Catastrophic for many, it will also be viewed, amongst other things, as one when global stock markets rallied the most in many decades.
However, some investment strategies such as conservative equity income that are tried and tested over the medium to long term will have under-performed the overall market.
We attribute this to the fact that the recovery trade - or ‘dash for trash’ trade - where lower quality highly leveraged companies (e.g. banks) rebounded very sharply.
Historically this has always been the case but 2010 will be quite different. Our view is that the macro outlook for 2010 will reflect lower leverage and lower overall economic growth.
We can expect a tougher environment for sustained revenue and profit growth, compounded by weak consumer expenditure, higher taxes and continuing low interest rates for most of the year.
Companies that will do well in this kind of macro environment are those that have strong balance sheets, visible revenue and earnings streams and large emerging market exposures.
Historically markets recover very strongly from bear market lows (such as in March 2009), but this type of rally normally lasts 6-9 months.
The next phase following this is a more muted affair and it is here that high quality/high dividend yielding stocks come into their own and start to outperform. This has been the case over the past number of recovery phases in 1982, 1990 and more recently 2003.
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