IMS Strategy vis-à-vis the outlook for Financial Markets

Financial Markets - IMS Strategy 1st Quarter 2008.

Equities - within equities, a slowdown in the global economy would tend to favour larger cap companies, and so we retain our overweight. Visible forward earnings also are favoured in this environment and we therefore continue to retain our growth and quality bias. That said, with the fourth quarter sell-off on the back of the financial crisis, pockets of value are beginning to emerge – notably in the US – and we are taking our weighting in America back up to neutral. It is at the expense of the UK and Europe, which we are moving to underweight: valuations look expensive, the strength of the currency is going to impact earnings, and it is doubtful whether a slowdown in economies can be avoided. We retain an underweight position in Japan: valuations are attractive, but it is hard to see from where any buying momentum will emanate. Our belief that recession in the Western World can be avoided leads us to maintain our overweight in Asia and emerging markets/commodities for the time being. (Though we are tending to o/w those funds which are more defensive and/or absolute return orientated).

Fixed Interest – within fixed interest, managers we have met recently have been reducing duration for two reasons: sovereign yields discount too much negativity and credit – particularly high quality corporates and mortgages – is beginning to look like good value again. It is in the areas of high quality corporates that we are going to build to a neutral weighting. Opportunistically, we will also look to add index-linked securities as we see inflationary pressures build.

Summary – In summary, while the outlook for financial markets is likely to cause increased volatility in the shorter term, we believe that there are continued opportunities within both equity and fixed interest markets into 2008.

Trevor Chanter, FSI
Director
17th January 2008.

WISL Press Release Date: 18th January 2008. Reproduced with kind permission.

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Press Release Date: 18th January 2008.