UK stocks worth owning, according to wealth bulletin and equities also being talked up by experts

News - Funds

Written by Ray Clancy

Friday, 05 March 2010 09:53

UK stocks are worth owning and investors should stay overweight in equities and hedge rather than restructure, their portfolios prior to the forthcoming election, according to Barclays.

In its monthly strategy report, Compass, covering Europe, the Middle East and Affica, the wealth manager says that the recent bout of market nerves will prove temporary. This week there are already signs of recovery, particularly in the US, it adds.

‘We do not recommend that investors restructure their core portfolios. For lower composure investors, a strategy of hedging, using put options, can help reduce volatility in a cost-effective way,’ said the report.

The bank recommends Japanese export stocks as a decent hedge, partly because China is a key destination for Japanese exports. Investoprs can buy into this through a basket of currency hedged export stocks.

Commodities are another hedge against geopolitical risk, it says and recommends a diversified portfolio of commodities, even in light of the sharp sell off in January. ‘We expect commodities demand from emerging markets to continue growing in 2010 and we note that, by historical standards, prices have not recovered at anywhere near their usual pace relative to equities,’ the report continues.

The bank does not advise investors to diversify away from the UK at this point. It said the pound is looking inexpensive, particularly against the euro and the UK stock market is effectively the most internationally diversified developed market.

Analysts at the bank believe the pound and the FTSE Index, but not 10 year Gilts, are likely to be materially higher at the end of 2010.

‘For most of the last six months we have felt that the pace of increase in US and European interest rates priced-in to the money markets has been too rapid. This is no longer the case. Money markets now look overly optimistic to us,’ said Kevin Gardiner, head of investment strategy, EMEA, Barclays Wealth.

‘Within investors’ holdings of liquid reserves, we suggest a shift back towards traditional money market instruments in preparation for the eventual rebound in rates,’ he added.

Equities are also a good bet according to Leigh Harrison, Head of UK Equities at Threadneedle. ‘While we acknowledge the economic and political challenges facing the market, we believe that equities can make progress over the next two years. Following the rally of the past year, valuations are no longer compelling at the aggregate level, but they are still on the right side of fair value,’ he explained.

‘Moreover, parts of the market look very good value. One example is defensive growth companies. These were left behind in the liquidity-driven rally of 2009 but, with economic growth likely to plateau in the coming quarters, companies offering solid, sustainable, single-digit growth are likely to be re-rated,’ he added.