The following are the latest published views of Philip Gibbs, the outstandingly impressive manager of the Jupiter Financial Opportunities Fund, which produced a positive return of 7.25% in 2008, despite the year being the worst for equity markets since 1973-1974. Since its launch in 1997, the fund has produced a compound annual return of 19.65% and ranks 1st out of the 740 unit trusts/Oeics in existence for that period. (Disclosure of interest: I am an investor in this fund,but it is not the purpose of this website to make specific investment recommendations – if in doubt, please read the investment warning at the foot of this page).
Philip’s impressive performance last year is the result of his correctly anticipating the financial crisis in 2007, reducing his exposure to the US and UK markets and then moving into cash and long dated government bonds in a big way November 2007 . He is one of a small number of professional investors whose views I regard as required reading (one of the factors that helped me to turn bearish and miss the worst of last year’s crash).
His view now: “The market and government policy makers have consistently underestimated the depth of the banking crisis and its effects on the global economy. We are still at the early stages of the global recession, with the implications of rising unemployment and falling house prices only just being felt. Credit conditions are far from normal, with interest rate spreads remaining significantly above historic levels”.
“This implies that banks are unwilling or, more likely, unable to extend credit in an environment where personal and corporate bankruptcies are on the rise and rebuilding balance sheets remains a priority. It is quite possible that banks will require further government assistance during the year as the economic environment deteriorates. Despite the poor economic backdrop, some opportunities for investors remain. Valuations appear cheap, for example, in some parts of the insurance sector where companies are not far from or at discounts to their net asset values. However, there are few stocks that are able to truly be relied upon during the continuing credit squeeze and economic slowdown.”
In other words, don’t yet bet the shop on the encouraging signs of an equity market recovery we have seen in the last few weeks; and do remain wary of the banks. We still don’t know how bad things are going to be for them as the economic recession unfolds.