Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Alan Porter, fund manager, Securities Trust of Scotland.
‘Out with the old, and in with the new’ is the traditional saying at the start of a new year. But so far, it looks as though 2014 will be very much a continuation of the past few years: low interest rates, low inflation and low growth.
Market sentiment also again looks likely to be dominated by political and macroeconomic events – including the withdrawal of the Federal Reserve’s quantitative-easing policies, which started last month.
Yet despite this uncertainty, there is still great potential for good stock pickers. Share valuations and yields remain attractive, especially compared with other asset classes.
Many companies have emerged from the financial crisis leaner and keener, with plenty of cash to invest or return to shareholders. So careful stock picking could be well rewarded this year.
Also, having a global range of stocks to choose from means we can not only access a broader spectrum of companies, but we can also reduce volatility, by spreading risk across a wide range of geographies and industries.
Several recent additions to our portfolio at the Securities Trust of Scotland (LSE: STS) and some of our established holdings highlight the scope for finding high-quality stocks worldwide, across an array of sectors. European markets were hit very hard in the wake of the eurozone crisis, so it is little surprise that this is where some managers are finding interesting opportunities.
In particular, some European financials now show signs of promise, such as BNP Paribas (Paris: BNP). The French bank and financial services company is still trading on under ten times earnings.
The idea of owning a continental European standard-retail bank is quite a contrarian view to take, but we have been really impressed by the fact that BNP’s revenue base has been relatively stable recently, and it has a cost-cutting programme which it is executing very well. The market feels it’s a very risky bank, but it has a healthy balance sheet, strong liquidity and solvency, and it looks relatively good value to us.
Of course, the beauty of an investment portfolio with a global outlook is that high-quality, high-dividend stocks can be found anywhere in the world, and in any industry.
For example, AbbVie (NYSE: ABBV) and SJM (HK: 880) are two starkly contrasting companies we own. AbbVie is a US pharmaceutical company, whereas SJM operates casinos in Macau. Aside from being well-run businesses with excellent long-term growth prospects, one thing they have in common is their recent share-price performance.
AbbVie performed well in 2013, and this run of form looks set to continue. We think it could beat market expectations from 2014 onwards on the basis of higher and more sustainable growth of Humira, a drug now approved to treat several different diseases.
Likewise, SJM outperformed in 2013 as the business metrics for the Macau casino industry and for SJM itself remained robust. The company also looks likely to benefit from the potential for transport infrastructure to drive mass-market Chinese growth and a better profit-margin mix as the business becomes more mass-market-oriented.
So even though there’s a lot of economic ‘noise’ at the ‘big picture’ level just now, maintaining a focus on attractive, high-quality and sustainable businesses worldwide should leave you well placed to navigate 2014.