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16/12/20192 mins

Manager’s Outlook 2020

The stockmarket remains strong but the global economy seems to be slowing. Markets continue to dance to a cheap money tune but recently have shown less appetite for profitless growth at inflated valuations. We think this new mood will spread to other areas of the market where investors have been prepared to accept ever fancier valuations for ‘certain’ growth. We cannot be precise on when this will happen but we do know that ‘sure’ things almost always disappoint and that paying a steep price is a bad starting point.

There has been much talk of a recession lately, but the reality is that, outwith the US, most of the world is already enduring sluggish conditions. Most of our holdings are in the unloved and out-of-favour parts of the market and, arguably, many are already priced for a recession. We think this gives scope to defy low expectations and thus to generate long term gains.

A global recession is a possibility but politicians are alive to this threat. President Trump seems keen to sign a watered down trade deal with China, with one eye on his re-election, while the US Federal Reserve has not only cut interest rates but has again started to inject money into the financial system in a QE-like manner.

We think the Brexit fog is starting to lift and we believe that the combination of a cheap currency and depressed UK stocks relative to other parts of the world could be an interesting opportunity.

I have previously noted that, as contrarian investors, we actively seek unfashionable investments that we believe have underappreciated potential. Where expectations are low there can be significant scope for positive surprises and this is where we believe the best balance between risk and reward exists.

Alasdair McKinnon

16 December 2019

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