Institutional investors have been urged to opt for actively managed funds this year, particularly in the global equity space, as the end of the bull market will see market risks increase, according to Bell Asset Management’s chief investment officer, Ned Bell.
Bell told Money Management that 2019 would see the current market volatility stick given the upcoming rising interest rate environment and the US-China trade war, with Apple’s drop-in share price and downgraded earnings the first shot out the cannon/
“Apple is not alone and is one of the many corporate casualties from increased US-China trade tensions and a slowing Chinese economy,” he said. “In addition, governments around the world are commencing quantitative tightening regimes, ending the chapter of cheap money which has contributed to a higher degree of investor caution.”
Bell said institutional investors needed to shift their thinking as risks rise, and while the last few years have seen passive investing rise, the pendulum might swing back to active in 2019.
“We’ve come from this environment where we’ve had an incredible eight year bull market driven by QE [quantitative easing], and that came to a grinding halt at the end of September,” he said. “In that time there’s been a huge shift towards passive investing at the expense of active, but we think 2019 is going to be a really good year for active stock pickers.”
Bell predicts more earnings downgrades are to come, especially in cyclical sectors like the mining sector, but said given valuations had pulled back so much in the global equities, it was a good time to buy.
Bell said opportunities for investors would lie in global small/mid cap stocks given they’ve far less direct exposure to the trade war.
“Small/mid cap stocks are a real flavour of ours and one of our points of differentiation – they’re trading on a price/earnings ratio of about 14.5x, and over 14 years that asset class has been the best returning asset class in global equities.”
Contrastingly, emerging markets still look challenging this year, and Bell predicts the asset class would continue to suffer earnings downgrades.
“Emerging markets is increasingly a China bet, and the economic data coming out of China is just going from bad to worse frankly,” he said.