The global economy is recovering, so you need to be prepared to capture upward trends.
This is the view of George Dent and his team. Dent is a portfolio managers at Walter Scott & Partners Limited in Edinburgh, UK. His firm manages the Renaissance International Equity Fund.
He adds, “We’ve seen signs of life returning to the U.S. economy, and worries about China that [dominated] last year…have started receding.”
Though he says his team consists of bottom-up stock pickers, not macroeconomists, they still consider the state of the overall economy. And despite positive data, they cautions there’s still a lot of debt in the U.S. and Europe.
There’s potential for the global economy to take a step back. To that end, Dent says, “The U.S. companies we hold tend to be very global, so they [would] be impacted but we’re hoping not excessively.”
As for Europe, the continent’s problems have been going on for a number of years, so people aren’t as scared as they used to be to invest in the region.
Dent adds, “We don’t own much in the way of [European] banks. We’re somewhat insulated in the event we see a further turndown in the periphery.” He adds concerns about the Euro are starting to come back.
China worries his team the most, primarily because it “really does stand out as being a real driver of growth while the rest [of the world] is still limping on to some extent. If we were to see a surprise issue erupting there—like analysts thought would occur last year—that would have ramifications.”
Despite these concerns, it’s comfortable with the companies in its portfolio.
“Most we’ve earned with for a very long time and we’ve seen them go through cycles. Even when things get very difficult, they are well placed to position themselves for growth when things improve and to withstand difficulties.”
Dent adds, “If you look at them from a relative point of view…a number of our companies benefited from a general shift toward high-quality names that you saw across the market last year.”
But Dent and his team find few performed better than their fundamentals warranted. So they trimmed back those stocks selectively and reallocated the portfolio.
He adds, “We saw a major lifting in economic sentiment and a lot of those worries receded about Europe and other areas [as if] they managed to resolve the Euro crisis.”
Expect catch up from lower-quality names as well. You want to invest in areas that will do well, but to also make sure you’re well positioned if things continue to be tough.