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THE INVESTOR
Viewpoint
RichardColwell isHeadof UK Equities,
ColumbiaThreadneedle Investments
The fund manager sees new opportunities for active managers, despite the rising
popularity of passive investment strategies, and is optimistic about UK equities
THE INVESTOR CENTRE
What do you see as the
principal risk to the equity
markets currently?
The biggest risk is that we are coming
to the end of Quantitative Easing
(QE), or ‘money-printing’ in plain
English.This has been a key driver
of markets for seven or eight years
since the financial crisis rather than
a significant improvement in the
underlying operating performance
of companies.The glass half-full
interpretation of this is that the
financial authorities are comfortable
that the global economies can finally
stand on their own two feet and that
the banking system has healed.The
half-empty one is that inevitably there
will be some turbulence as we move
to a tightening environment, albeit
from a very loose monetary one.
Nevertheless, if the US Federal
Reserve follows through on its current
tightening plan that will have
ramifications for equities globally.
What impact, if any,
is Brexit having?
With or without Brexit, after the
economic and stock-market cycles we
have seen it would not be a surprise if
both the US and UK experience some
form of recession in the next few
years.You can have continuous debate
over the impact of Brexit and its
implications for investment decisions,
but I am not fixating on how Brexit
will pan out in the next few years.
We are trying to pick stocks not by
predicting news headlines, but by
focusing on valuations.We focus on
how the underlying businesses and
cash flows could be stressed, then
calculate whether we think the market
is overpricing the downside.We are
optimistic that fears in the market about
Brexit will present opportunities.
What about the sharp
fall in sterling?
Sterling was at the wrong level
pre-referendum given the country’s
current account deficit and therefore
the fall we have seen is the right
kind of adjustment – even if it
happened sooner and in a harsher
way than foreseen.
One important factor is that UK
equities have been an area that
investors globally have shied away
from ever since the Bank of England
stopped QE under the previous
governor. So investors in aggregate
now have their lowest exposure to UK
equities in 10 years – there is no ‘hot
money’ in the asset class.That’s exciting
and should make the UK market more
resilient in the event of a slowdown.
Overall, I am positive that, in a post-
Brexit world, UK equities can prosper.
Do you seemergers and
acquisitions activity picking up?
We have already seen some bid
approaches and it wouldn’t surprise
me if we saw this continue.There
are a lot of potential predators in
the US and Europe with access to
attractive borrowing facilities.A
valuation arbitrage has opened up,
meaning some UK equities look
comparatively cheap compared with
their counterparts elsewhere.
Does the growth of passive
strategies pose a threat to active
managers such as yourself?
In the US, exchange traded funds
(ETFs) have grown to the point where
they now account for about a quarter
of assets under management and
around 60% of daily trades.They
amplify the movements in the
THE FUND MANAGER VIEWPOINT