Richard Colwell, head of UK equities and manager of the £4.1bn UK Equity Income fund at Columbia Threadneedle Investments, has said the big issue of how central banks navigate this period of quantitative tightening will create risks as well as opportunities, pointing to the polarisation of asset prices as one of the "unintended consequences" of quantitative easing (QE).
The manager said the current environment was very similar to the lead-up to the dotcom bubble in 2000 and 2001, whereby if the market viewed a stock as a disruptor there was no limit to its valuation, but there was no floor if a company was viewed as being disrupted.
"As an active investor, that gives us opportunities to identify some of those disruptors that are "emperor's clothes" and could get disrupted themselves," he said.
"It is about selecting business models which have been undervalued and actually may have the where-with-all to adapt."
Colwell also noted central banks had become very sensitive to interest rate rises, due to the huge build-up of debt over the past decade since the financial crisis.
The Federal Reserve only recently began tapering its $4.5trn balance sheet in October, while the European Central Bank continues to purchase €60bn of assets-a-month, which will be reduced to €30bn-a-month in January, with its balance sheet totalling €2.6trn.
Colwell commented: "Navigating [monetary policy] is a far bigger risk than Brexit. You can see over the eight-year period of this powerful re-rating of equities, earnings in aggregate have gone nowhere which is why investors are eager to pay a premium for the scarce growth they can get.
"A lot of the issues investors are very concerned about are the result of the unintended consequences of QE, whether social, political, economic or in terms of investments."
Meanwhile, Colwell said Brexit was another event which he was looking to take advantage of, as the referendum result had also caused asset price polarisation.
The manager expects the UK's exit from the EU to play out as an "acrimonious divorce".
"The rest is noise," Colwell said. "Of course, in negotiating we are not going to reveal our hand and tragically, because we have a weak government, we are on the back foot.
"In any negotiation you need a plan B, which is frustrating as [the government] has not articulated an alternate solution."
Colwell said he did not want to wait to learn what sort of trade negotiations the UK agrees with the EU but would rather invest in companies which appear attractive now, as a result of being de-valued because of the market noise.
"We do not want management to make an excuse about Brexit in profit warnings," Colwell said. "We want them to be on the front foot, not sulking about the result.
"There are real opportunities with the polarisation of Brexit and disruptive stocks; those are the two themes we are hunting in."
According to FE, the Threadneedle UK Equity Income fund has returned 26% over the past three years, in line with the FTSE All Share benchmark, and compared to 25% for the sector, as at 29 November.
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