SVM says global money printing should continue to drive markets

24th April 2013

With investors asking how long the rally can continue Margaret Lawson, manager of the SVM UK Growth Fund says that the huge amount of global money printing should continue to support things.

In a note, she writes: “Looking at drivers of the equity market, the key factor is the huge amount of money printing around the world. Monetary policy looks set to remain loose for years to come, or at least until US unemployment normalises at 6%, and although there are plenty of macro issues out there, risk assets remain the place to be. As long as investors are struggling to get returns elsewhere, we feel demand for equities will continue to support performance.”

She says that a further reason for bullishness is the health of balance sheets, with many companies in their best shape for years. “In the wake of the credit crunch, businesses have broadly deleveraged and refinanced at cheap rates, meaning corporates are much better positioned to withstand shocks,” she says.

She says that bears may be more concerned about the UK. She writes: “We feel confidence is better, with QE easing mortgage worries, employment stabilising and incomes starting to rise from lows. No one is saying we have a great macro backdrop but things are improving – and there are plenty of companies that can perform in challenging economic conditions.”

She says that a common theme in the fund’s holdings is strong cash-flow generation.

“This provides the capacity to generate shareholder value in various ways, be it organic growth, progressive dividends, retiring debt, buying back shares or mergers and acquisitions. We generally like areas where expenditure is small but repeat, such as pub groups and certain retailers. With retail, our preference is for niche operators with specific advantages in their market, such as internet shopping company N Brown or SportsDirect. SportsDirect is largely on its own in this space as competitors have gone out of business. As well as stocking brands like Nike and Adidas, it also carries its own lines such as Lonsdale and Slazenger. This effectively subsidises the lower margins on premium goods and means the company can sell these at cheaper prices than peers. Staff are also well incentivised through bonuses, which keeps their interests aligned with our interests as shareholders.”


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