UK - Schemes should be increasing their equity weightings and buying stocks which have been pushed down by a series of unrelated events, fund managers claim.
Research from MFS Investment Management shows the difference between the absolute and relative risk of equities has fallen “dramatically” since the start of the year.
The fund manager claims stocks are being undervalued due to falling risk and prices being pushed down by unrelated events – such as the conflict in Iraq.
MFS associate portfolio manager Betsy Palmer said: “The decline in risk across equity markets, if temporary, could represent an opportunity.
“If stocks are all reacting similarly to exogenous events instead of company or industry fundamentals, managers should be able to find misvalued stocks.
“Eventually, stocks are likely to resume reacting more to company specific events and when this happens, managers should be able to reap the rewards of having invested in mispriced issues.”
Tilney Investment Management director Peter Bickley agreed but warned that pricing anomalies were normally “discovered and unwound pretty fast”.
He added: “If you base your strategy on looking for individual, isolated, undervalued assets all the time, maybe you’ve got a few more opportunities at the moment.”
But Isis Asset Management head of institutional business Robert Matthews warned schemes not to read too much into the MFS research.
He said: “We’re positive on equities, but saying it’s a great buying opportunity is taking things too far. There’s always a case of mispricing in stocks and its one of the jobs of active fund managers to ferret out mispriced stocks.”
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