In late January, I suggested that trustees should encourage their investment managers to reduce their exposure to cash and re-enter markets. When markets rally, they do so quickly - and they have rallied by between 30 and 40 per cent globally since March. I would now suggest that investors still building up their equity exposure should do so with care because, at least in the short term, there is more risk of stocks falling than rising. Some stocks are looking positively expensive once again, and yet others still have plenty of potential. It is a stock-picker's market, which suits some managers better than others.
In our asset management firm we are increasing our investment in companies that provide solutions to major global issues such as water resource shortages, climate change and demographic shifts.
This year, governments around the world have responded to the economic crisis by committing $2.8 trillion (£1.74 trillion) to a global stimulus package. Fifteen per cent of this - $430bn - is earmarked for green infrastructure. China and the US are the leaders in terms of scale, committing $221bn and $112bn respectively to the green agenda. This money is already being distributed and will be spent in the rest of 2009 and 2010. With this in mind, now looks like a good time to invest in quality, established businesses at the heart of the 'third industrial revolution' - clean energy, water infrastructure, efficient resource use and shifting demographics.
One candidate is Eaga, a provider of residential energy efficiency and renewable energy solutions based in Scotland that has about 300 employees. The firm has excellent growth prospects and is trading on a reasonable valuation. It is visible on the UK Government's Warm Front programme, which aims to make homes "warmer, healthier and more energy efficient". It has also won a contract with Scottish Power that will see the energy provider outsourcing its carbon emissions reduction target obligations, which are set by Government. It has a five-year pipeline to 2013 of £2bn, and has demonstrated resilient revenues through the downturn.
According to a Barclays Capital Survey, 82.5 per cent of investors don't think the current market rally is sustainable. I expect they are right. Trustees should ensure their managers are not simply leaping on the bandwagon by buying equities but are instead investing with caution. I expect there will be more volatility ahead.
This is a new era in many ways, but ensure your investment manager is wary of short-term market trends.
- Nicola Donnelly is a fund manager at Wheb Asset Management