SECTOR PROFILE
to unprecedented opportunities for the likes of BP and Shell .” For Metcalfe , the low point for the IA UK Equity Income sector probably came in February 2020 , a time he notes that energy prices and commodities were collapsing , owing to demand “ falling off a cliff ”. “ At the same time , interest rates looked as though they would remain at near zero for as far into the future as we could see at that time , so financials which had been suffering for years were under even more pressure ,” he says . So while the sector has , in Metcalfe ’ s words , been a “ star performer ” since the dark days of February 2020 , he believes the inflationary backdrop will support commodities – particularly energy – and financials , which he describes as a “ strong platform ” for the sector as a whole .
False sense of security Rather than being concerned about a rotation into growth assets , Ian Lance , manager of the
Temple Bar Investment Trust , cautions investors that now is not the time to sell the classic value cyclical sectors in favour of defensives .
Lance notes that since the start of February , cyclicals have performed much worse than the wider market as investors have become concerned that rising interest rates and high energy prices will lead to a recession . “ As a wise investor said to me many years ago , ‘ if you are going to panic , panic early ’, and selling cyclicals now feels too late to us ,” he says . “ We understand that owning or buying cyclicals today feels uncomfortable , yet it is our experience that only by feeling uncomfortable can you expect to make superior returns .” However , Lance claims many asset allocators seem incapable of stomaching fluctuations in a company ’ s profitability or share price , and therefore stability , which is much sought after , has become overvalued . “ Since we are not unduly concerned about variations in short-term profits , nor share price volatility , we regard this as a very attractive investment opportunity ,” he says . “ The future is never clear , and you pay a high price in the stock market for a cheery consensus . Uncertainty is the friend of the longterm buyer .”
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