Old Mutual Global (OMG) is a good choice for investors seeking a highly diversified global equity portfolio - so diversified that its portfolio contains almost 500 shares. But this has not stopped OMG from consistently beating its benchmark (93% of the MSCI world index and 7% call-rate yields) over seven years. OMG's UK-based manager, Eoin Murray, is bullish on global equity markets, citing strong earnings and dividend growth and merger and acquisition activity as key drivers.

Financial Mail - 09 December 2005

Global equities enjoyed a strong quarter, helped by the high oil price and continued corporate activity. The MSCI World Index advanced 7% in US dollar terms, helped by a gain of 19% in Japan, while the UK and Europe performed broadly in line with the World Index and the US was the laggard with a dollar return of 3%.

Japan benefited from a successful general election outcome in early September for the ruling Liberal Democratic Party, ensuring the continued stability of the government and paving the way for reformist Prime Minister Junichiro Koizumi's postal savings bank privatisation plan. The UK and Europe were driven higher by continued merger and acquisition (M&A) activity, both actual and speculative, while the UK in particular benefited from the strength of the oil price as the resources sector accounts for around a quarter of the capitalisation of the entire market.

In the US, despite strong performance from the energy sector producing a dollar return of over 18%, the performance of the market was constrained by weakness in the consumer discretionary area resulting from oil price strength, as hurricanes Katrina and Rita ripped through the southern states, knocking out refining capacity and causing a trail of devastation.

In sector terms, the strongest performances came from resources and materials, buoyed by the continued rise in the oil price, which extended its gains to just above $60 a barrel, having at times traded nearer to $70. Already being driven higher as strong demand starts to outstrip refining capacity, price gains were compounded by the reduction in capacity resulting from the hurricanes in the southern states of the US. Precious metals also gained ground over the quarter, while the performance of base metals was more varied. At the other end of the scale, stocks within the consumer sectors underperformed, along with selected defensives such as healthcare.

Despite the recent run-up, equity markets continue to appear attractively valued, with the US and Japan the most expensive, based on 2005 price/earnings (P/E) multiples, and Europe and the UK looking significantly cheaper.

Markets remain underpinned by strong growth in corporate profits, which have not slowed as expected. Global consensus earnings estimates are expected to be in double digits for calendar year 2005, with dividend payouts also increasing as companies look to increase shareholder value. Furthermore, there is no sign of an end to M&A activity, which is also supportive of share prices.

Despite Old Mutual Global Equity's (OMG) seemingly unwieldy portfolio of almost 400 shares, sound regional allocation has enabled it to consistently beat its benchmark: 93% of the MSCI world index and 7% based on call-rate yields. Over the past year Eoin Murray, OMG's UK-based manager, has correctly underweighted US holdings in favour of European equity. He remains upbeat on equity relative to other assets and in terms of ratings says p:e ratios are at their lowest in eight years.

Financial Mail - 12 August 2005

After a disappointing start to the quarter global equity markets reacted positively to an improving global interest rate scenario. Despite some concerns over the effect of high oil prices on economic growth, the MSCI World Index managed to close the quarter in positive territory.

In local currency terms, the strongest performance came from Europe ex UK, followed by the UK and US, with Japan flat. However, in common currency terms returns were distorted by some strong currency moves, with the dollar continuing to strengthen, advancing 7% against the euro, 5% against sterling and 3% against the yen.

European equities were helped by positive corporate newsflow, although confidence continues to wane amid mounting concerns over the pace of economic growth. In the UK, news that two of the nine members of the Bank of England's Monetary Policy Committee had voted for an interest rate cut at the June meeting prompted speculation that rates may be lowered sooner than previously expected. The US was also buoyed by interest rate optimism, with speculation mounting that the benign inflationary environment may advance the peak and level of the rate cycle. Japan was the laggard because despite falling unemployment and service sector expansion, high oil prices resulted in increased import costs and reduced demand for exports, constraining economic recovery. Meanwhile the trend in manufacturing output remains flat as electronics manufacturers cut inventories as oversupply and falling prices reduce profits.

By sector, energy stocks were the strongest performers, benefiting from continued oil price strength, while financials were helped by the improving interest rate scenario. Lagging sectors included industrials and consumer staples.

Within commodity markets, cash metal prices all fell over the quarter, with the exception of copper, which advanced further as consumption continues to outweigh production. Oil reached a new record of $60 a barrel in late June on concerns that new Iranian president Mahmoud Ahmadinejad may limit foreign investment in the country's oil industry, stemming supply increases as demand rises in the US and China. The oil price is now 60% higher than a year ago. Gold continued to strengthen, although it ran into some late profit-taking as the dollar strengthened.

Equities remain attractively valued, both relative to bonds and in absolute terms, with P/E ratios standing at levels last seen eight years ago. While valuations remain supportive, a slowdown in profit growth momentum is nonetheless anticipated, although the much vaunted economic slowdown appears to be happening at a more gradual pace than many had forecast.

The quarter started off on a subdued note for global equities as oil prices reached new highs. Markets made up lost ground mid-quarter, buoyed by positive economic data and corporate activity, before seeing renewed weakness towards the end on concerns over rising inflation in the US. The Federal Reserve's interest rate rise was accompanied by hawkish comments on inflation, leading to concerns that rising inflation may accelerate the pace of interest rate hikes as the year progresses. Meanwhile, dollar weakness, a record oil price and a warning from US auto giant General Motors compounded the weaker tone.
The World Index returned 0.6% in pound sterling over the quarter, but dollar weakness resulted in a 1% loss in dollar terms. Losses were led by the US and Japan, while Europe ex UK was flat and the UK was the only market to show a noteworthy dollar gain. In sector terms, the runaway leader was energy on the back of oil price strength. Materials and defensive utilities showed some gains, but the technology and telecoms sectors led the fallers, both losing 6%, with consumer discretionary and financials also weak.
The economic environment remains supportive, both domestically and globally, although slowing growth on both sides of the Atlantic is likely to be a feature in the coming months. With the prospect of further oil price strength and dollar weakness, the market could well tread water over the near term, although variations between sectors and stocks are likely to offer continued scope to add value through good stock picking.

Global markets began the quarter in a nervous mood, with the uncertainty ahead of the US presidential election compounded by ongoing dollar weakness and fears over the likely impact on global growth of the seemingly relentless rise in the price of oil. Markets subsequently took heart from the re-election of President Bush to the White House. By the end of December, global stocks had posted their best quarterly performance of 2004, as oil prices traded well below their peak, easing concerns that higher energy costs would restrain earnings and economic growth.
In local currency terms, all markets advanced during the quarter, with the best performance coming from the US, which returned over 9%. However, in dollar terms Continental Europe returned almost 18%, benefiting from a 9% gain in the value of the euro relative to the dollar, while Japan and the UK (both up 13%) and the US (9%) all registered good gains.
With all sectors advancing over the quarter, the strongest performances came from the technology and telecom areas, while the materials, healthcare and energy groups were the weakest - the latter impacted by a sharp decline in the price of crude, which closed the year at $40 a barrel, around 23% below its peak level.
With the continuation, during 2004, of the recovery that began the previous year, expectations are that 2005 will see further progress, especially given a healthy corporate sector, modest valuations and support from high institutional cash levels. Nonetheless, there are downside risks, with the US and Chinese economies, in particular, expected to be the key influences.