The pandemic has led to a distortion in data and a resulting dip in confidence in forecasts, according to the lead manager of Franklin Templeton’s UK opportunities fund.
Ben Russon told FTAdviser: “The difficulty now is that the data is so distorted [by the pandemic] and for a lot of data points we are seeing numbers that we're not used to seeing.
“Given all that’s gone on, confidence in forecasts is lessened.”
He added this made it harder for portfolio managers to correctly balance portfolios.
“It’s difficult because you have a framework of analysis based on assumptions on economic growth, interest rates, etc, and what that means for corporate earnings, that framework gets thrown out the window overnight [after a pandemic].
“It is really challenging, because you have to go back and work on a new set of assumptions about what’s happening now and what that means for corporate earnings.
“And you've got to have a good hard think about where you could be wrong, and what could change.”
Russon is the lead manager on the Franklin UK opportunities fund and co-manager on the Franklin UK Managers' Focus Fund.
The £44.7m opportunities fund produced a 15.86 per cent return on investment between May 2020 and 2021, compared with its benchmark (the FTSE all share) posting a 23.13 per cent return.
For the previous year, the fund returned -7 per cent, compared with the benchmark posting a -11.16 per cent return.
Russon joined Franklin Templeton’s UK equity team in 2013, after 13 years as a fund manager with Newton Investment Management, specialising in UK equities.
He previously worked in Newton’s research team, specialising in the global food retail sector.
UK market
He said despite the rocky year the UK market was still a good source of yield for investors.
“You could argue that income investing has gotten easier in recent years," he said.
“The UK market was [previously] criticised for being overreliant on a limited cohort of sectors and some very large dividend paying stocks were doing all the heavy lifting in terms of dividend payout for the UK market. [At that time] income investing did get quite dependent on a few corporates and got quite narrow in its exposure.”
Russon said today there was a broad spread of companies and sectors within the UK market offering attractive dividend yields.
“So it gives you a broader palette of opportunities for running an income strategy.”
“We’ve had tougher times of late with all the dividend disruptions of last year but, given the importance of yield and the difficulty of generating yield in and of asset classes, or indeed, in other geographies, and in the UK market does play well as a source of yield for investors.”
sally.hickey@ft.com
