Delegates at Investor's Week's Investor 2001 conference held in London last fortnight have named p...
Delegates at Investor's Week's Investor 2001 conference held in London last fortnight have named pharmaceuticals and Europe as the market sectors and geographic regions most likely to produce growth in the future.
About 35.5% of conference participants attending one stream of talks named pharmaceuticals as the sector they expected to perform best in 2001, with financial services and banking receiving 23.4% of the votes. The leisure and entertainment industry ran fourth (13.2%), and despite recent falls in tech share prices, technology ranked as the next most probable to outperform this year (11%).
About 95% of voters felt health and biotechnology were growth areas, given developments in the human genome project, and the audiences were split fairly evenly between those who had, and had not, already invested in these areas.
Voters in one of the first day's lecture streams felt Europe would outperform all other markets in 2001, with the Continent (favoured by 42.7%) followed by enthusiasm for the UK (17%) and the US (11.5%).
A recent report by UBS Warburg combining the two themes of Europe and biotechnology said investors should take a particularly proactive approach to managing their European biotech holdings.
"Our investment thesis for the first half of 2001 is to invest in a portfolio of more mature companies, and look to select undervalued technology-oriented platform companies and hybrids. Sector volatility continues to focus on newsflow, and as such we encourage investors to actively manage their biotechnology portfolios," UBS Warburg says.
The broking house says genomics should provide opportunities for growth among agile companies, but valuing biotechnology businesses remained "fraught with difficult.".
But Schroder Salomon Smith Barney provides some good news for those looking to pharmaceutical companies closer to home. In its March UK Forecast Monitor report the broking house said "over the past three months four of the top five sectors, banks, oil and gas, pharmaceuticals and media enjoyed positive earnings momentum. Defensive sectors that appear in the positive earnings momentum listing include pharmaceuticals, food producers and tobacco."
"The negative earnings momentum screen includes three of the tech, media and telecoms sectors that are still suffering downgrades telecoms, software and IT hardware."
Tread with care
But Schroder Salomon Smith Barney cautions investors that not all shares in Britain's pharmaceuticals sector are alike, as "AstraZeneca has moved against its sector trend, suffering recent downgrades to both year one and two earnings estimates. Somerfield, SkyePharma, Telecity, Chrysalis and Fibernet have all moved from profit to loss over the past three months."
Andy Brough, manager of Schroders' UK Mid 250 fund, says 2001 should be better than in 2000 for UK equities, and UK-focused investors should concentrate on companies in the Mid 250, smaller than the FTSE businesses but larger than small caps, as "these companies tend to be younger than their larger counterparts and have much better growth potential."
He picks out retailer Debenhams and construction and engineering groups Balfour Beatty and Amec as some of his fund's top UK holdings.
The lack of strength in the UK market and the emergence of any long-term theme to which fund managers and private managers could peg their investment philosophy was shown by Schroder Salomon Smith Barney's assertion that January's outperformance by value stocks on Britain's market "reflected the fall in the most expensive stocks more than value stock strength."
But the asset managers added: "We continue to believe that, until there are consistent signs of a recovery in confidence, revivals
in growth stocks should continue to be treated with a degree of caution."
Brough noted caution for Europe investors with a looming US slowdown: "We expect Europe's gross domestic product to be reasonably robust in 2001 thanks to a positive outlook for the consumer. If the US slowdown does prove to be prolonged, however, Europe's consumers may start to be affected through a fall in the growth of employment and subsequently in consumer confidence.
"If this happens, the prospects for GDP growth would worsen considerably as both global demand and domestic demand will be slowing at the same time."
Tax efficient saving
With the end of Isa season approaching apace, 48% of investors present felt that the Isa products offering shelter from capital gains and income tax were the most tax efficient way of investing money into the markets. This group was followed by those who believed venture capital trusts which provide a deferral of capital gains tax liabilities if gains are invested within a VCT within 12 months of being made, that Isas lack were the better way to invest from a tax perspective.
This fiscal year, however, both methods of investing in public and private equity markets have faced downturns in investment in the UK. Isa sales are down about 25% on last year's figures, while the VCTs presently on offer to UK investors have attracted only about a quarter of the funds sought to invest in start-up ventures. Some VCTs have even been pulled from the market, having failed to reach their minimum investment targets.
Where do you invest?
Most voters (61.4%) at the conference had up to 25% of their portfolios invested in tech stocks and eight of every 10 present expected to have up to half their portfolios in technology in the near future.
But, despite the volatility of tech stocks shown since the mid-1990s, only 40% of investors voting had stop-loss policies in place.
When selecting shares in which to invest, voters considered the quality of company management most important (31.8% considering it), followed by analyst recommendations (21.3%) and financial results (23.6%).
Although ever more broking houses are viewing global markets in terms of sectors rather than geographic markets, only 20% of investors considered a sector's performance as most crucial when choosing shares.
Of those investors attending the lectures for more experienced delegates, 73% held the maxim to be true "when America sneezes the world catches a cold," citing the US economy as the biggest threat to Britain's market this year, followed by a UK economic slowdown (15.8%).
About half these delegates felt the FTSE would hit 6500 points by the year-end (it now stands at about 5550), followed by 6000 (34.5%) and 5500 (12.5%).
Perhaps because of the relative reticence of investors to elect a higher index level by 2002, 85% of those present on the first day chose to invest on a stock selection basis rather than in tracker funds. On the second day about 23% of voters said they would mix both an indexed fund view and bottom-up stock selection approach in a core-and-satellite approach.
The more experienced investors that had globalised held stocks mostly in Continental Europe (51.6%), followed by
the US (29%), the rest split
evenly between emerging markets and Asia.