As a value-orientated investor there are tough times, no more so than when markets are momentum driven as they have been for some time now – but valuation is the only catalyst for investment returns that I have ever trusted.
That’s why my investment strategy will continue to be based on a rational, disciplined analysis of the fundamentals of individual businesses, broader industries and the economies in which they operate. This allows me to make investment decisions based upon the differences between the market’s perception of value and my own. The shape of the broader macroeconomy is also a key influence on how I position the funds and, while I don’t feel the need to form annual forecasts for inflation, GDP growth and unemployment, I try to form a clear understanding of their likely direction of travel.
Many of you will be aware that my views on market valuations and the broader macroeconomic conditions have gone against the consensus for a while now – and they remain so.
As we move into 2018, I expect global liquidity to tighten and China’s economy to slow, with both acting as a brake on economic growth and financial asset prices. I expect the UK to defy expectations of a slowdown and for the valuation stretch between the popular and unpopular stocks will begin to reverse. While there are risks, there are equally opportunities – that is always the case when markets get carried away. I believe the best opportunities lie in UK domestically-focused stocks, a healthcare sector that has endured a prolonged bear market and companies (of all sizes) that have disruptive technologies at their core.
In the current climate, I believe it is more important than ever to focus on the broader issues that drive markets. Over the coming weeks and months, I aim to share with you a more detailed and regular insight into my thinking. It may be a chart, some data, a view from an economist, a press article or simply a view based on conversations with my close contacts.
It will likely challenge the consensus and some of you will disagree with me – however, it should give you a greater understanding of why my portfolios look as they do.