David Stevenson - Fund ManagerDavid Stevenson joined Amati in 2012. In 2005 he was a co-founding partner of investment boutique Cartesian Capital, which managed a range of retail and institutional UK equity funds in long only and long/short strategies. Prior to that he was Assistant Director at SVM, where he also managed equity products including the UK Opportunities small/midcap fund which was ranked top decile for the 5 year period from inception to 2005. David started his career at KPMG where he qualified as a Chartered Accountant. He latterly specialised in corporate finance, before moving into private equity with Dunedin Fund Managers. David has co-managed the TB Amati UK Smaller Companies Fund, Amati AIM VCT since 2012 and the Amati AIM IHT Portfolio Service since 2014.
2015 and some thoughts on 2016
Posted by David Stevenson on 08/Jan/2016
Hindsight helps, but actually, the stockmarket patterns of 2015 can be very easily explained. The big economic stories of the year - weak global growth, a Chinese slowdown, and US dollar strength - were all played out within commodity markets where prices fell to multi-year lows due to surplus capacity particularly in oil and base metals. This was clearly negative for the earnings of global resources companies, which announced a succession of poor trading updates, investment cutbacks and re-financings. This had a knock-on impact on a range of supply chain companies providing engineering components and services. All of which resulted in resources and industrial stocks being by far the biggest underperformers of 2015. Other weak sectors included food retailers (where the UK majors struggled against aggressive discounters), banks (beset by mis-selling scandals and ever-tightening regulation); and utilities (impacted by depressed global energy prices).
These sectors dominate the UK's FTSE 100 large cap index, and accounted for its decline of -4.9% over the year versus gains ranging from 5.3% to 8.4% across AIM and small/mid cap companies. This stark relative pattern is also easily explained. In contrast to the headwinds facing the global economy, the UK domestic situation remains relatively buoyant. Against a backdrop of low inflation (and hence improving real household incomes), growing employment, rising house prices and increased confidence, the best performing areas of the stockmarket were, hardly surprisingly, all consumer related. Housebuilding, household staples and leisure were amongst the leaders, but the strength of the domestic economy also drove property, construction, media and technology higher. These activities are all focused within the UK smaller companies universe.
Whilst future predictions tend to be dangerously influenced by rear view analysis, there seems little reason to question a continuation of many of these stockmarket patterns into 2016. The global economy still seems troubled, with rising US interest rates and a strong dollar now putting pressure on emerging economies dependent on foreign capital flows. The outlook for the Chinese economy remains uncertain, and still crucial to any recovery in commodity prices. Whilst the Eurozone may offer some prospect of a pick-up, much still depends on the success of central bank policy. Overall, a continued low growth global environment seems likely, at least for the early part of the year, with increased volatility also a possibility as interest rate cycles are now diverging across the advanced economies. This has major implications for currency markets, with the effects of the competitive devaluations of the Chinese renminbi during 2015 showing the scope for significant market disruption. In contrast, the ongoing dynamism of UK smaller companies still feels a better and more visible investment prospect. Of course there are uncertainties in the UK, with the economy over-dependent on consumer activity, and still carrying levels of private and public sector debt that are too high. However, entrepreneurial management teams with shareholdings in their own companies, addressing niche growth markets across technology, electronics, consumer brands, media, healthcare, and other areas rich in intellectual property, should continue to offer attractive opportunities in the year ahead.