Plenty of macro clouds, but here’s why now is attractive entry point

TL;DR

Sue Noka, manager of the Schroer Income Growth Investment Trust, discusses the possibility of a recession in 2024 and emphasizes the importance of valuations in attracting investors back to the UK stock market.

Transcript

hello and welcome to our latest Insider interview today in the studio I have with me Sue Noka for manager of the schroer income growth Investment Trust Sue thanks for coming in today delighted to be here as we head into 2024 there's a lot of Doom and Gloom associated with the UK stock market some commentators are predicting that a recession will ta... Read More

Key Insights

• 😎 Concerns about a recession may not be overblown, but it is likely to be shallow due to the response from central banks and the cooling economic activity caused by interest rate rises.
• 😘 Valuations, including price-earnings ratios and dividend yields, are important drivers of investor returns, making the current low valuations an attractive entry point for many investors.
• 🥳 The midcap area of the UK market offers compelling value opportunities, with attractive yield characteristics and price-earnings ratios compared to their own history.
• 🥺 The dominance of US large-cap tech stocks has led to outflows from UK equities, but diversification efforts could draw investors back to other markets.
• 🥡 Investment trusts like Schroer Income Growth have the ability to borrow and increase gearing levels, which can be advantageous in taking advantage of attractive market valuations.

Questions & Answers

Q: Are the fears of a recession in 2024 overblown?

Sue Noka believes that while there are concerns, a recession may only be shallow due to the rapid response from central banks and the cooling economic activity caused by higher interest rates.

Q: How important are valuations in attracting investors to the market?

Valuations, such as price-earnings ratios and dividend yields, play a significant role in determining future returns for investors. Noka emphasizes the importance of buying low to give oneself the best opportunity for positive returns.

Q: What factors could bring investors back to the UK stock market?

Noka mentions that if there is a crack in the dominance of US large-cap tech stocks and investors seek diversification in their portfolios, it could stop the outflows from UK equities. Similar factors may apply to Europe and Asia Pacific markets.

Q: Where does Noka see the best value opportunities in the UK market?

Noka finds the best value opportunities in the small and midcap area of the market, which has been derated for three years. The midcaps offer attractive yield characteristics and price-earnings ratios compared to their own history.

Summary & Key Takeaways

• Sue Noka acknowledges the concerns about a recession in 2024 but believes it may only be a shallow one, given the quick response from central banks to control inflation.

• Valuations, such as price-earnings ratios and dividend yields, play a crucial role in attracting investors to the market, and Noka believes the current low valuations present an attractive entry point.

• Noka highlights the opportunities in the midcap area of the UK market, which has been derated and offers attractive yield characteristics and price-earnings ratios.