A week in the life: Jacqueline Kerr
Head of mutual funds and life funds investment at Standard Life
Over the last two years we have been bullish about equities. They have been on a good run and that reflects the amount of equities we hold in comparison to our other assets.
One of my roles is to divide up the asset allocation of some of our funds. Because of the strength of the equity market we have around 56 per cent of our funds in British equities.
Up to 12 per cent of our assets are in European equities. In British bonds we have around 11 per cent. Most of the rest is held between three key geographical markets.
We have around 7 per cent held in American equities, another 5 per cent in Japan, and a further 5 per cent in Pacific Basin economies. The remainder, about 4 per cent, we hold in cash.
It is my role to decide how light or heavy our investment is across these various areas. This is done through a combination of three things: our view after research into these markets, what our rivals invest in, and the amount of risk we wish to be exposed to in any given area.
Stocks have outperformed bonds over the last couple of years. Growth across western markets has been good and company earnings have been robust. This year alone we have had the hurricanes Katrina and Rita as well as the London bombs, and the market was strong enough to shake it off. These look like the signs of a classic bull market to me.
The British market has enjoyed a particularly good time of it. British companies are generating a lot of cash at the moment. Mergers and acquisition activity has shot up since the beginning of the year. There has been a host of share buybacks over the last two years, and dividends are also rising.
A key indicator of the health of the British economy is the amount of foreign companies that are making purchases here. Spain’s Banco Santander Central Hispano buying Abbey last year for £8.5bn, and Germany’s Deutsche Post purchase of British rival Excel last month for £3.7bn are just two examples of this.
We had been neutral on Japan until recently, but we are beginning to become heavy buyers in the area now. The country is not out of the woods yet but we are seeing signs of growth, and it is beginning to pull itself out of the deflationary cycle that has dogged it for 15 years.
Our position in American stocks is broadly neutral. The American market has not grown as fast as many of its European peers. But the pick up in mergers and acquisitions activity began in America last year. Also, the hurricanes Rita and Katrina will give the economy a chance to spend on restructuring.
So although returns are not spectacular, solid profits can be made there. The bond market has suffered a little in comparison to the returning equity markets. Often the rule of thumb is that what is good for bonds is bad for equities and vice versa.
But that is not entirely true this time. Bond returns have not been bad. Pension schemes bought heavily into bonds after the tech crash in 2000, and the money they continue to put into the bond market has kept returns up.
But news on the domestic economy is not all good. When we look at the consumer it is clear he is not in the best shape. Mortgages and fuel prices have risen, and the rate of the economy’s growth is predicted to slow.
This may have shaken confidence but it has not damaged it as badly as one might think. For instance, unemployment is not growing, and that is a positive sign. Things are going to get worse for the consumer over the coming months, but not hugely so. And the evidence we see from British companies is that orders keep coming through. Overall signs still look healthy for the British equity market.
Jacqueline Kerr is responsible for Standard Life’s Global Advantage Fund, which has £648m under management.