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Deciding where to put your money right now is not easy.
The stock market is erratic, real estate prices have fallen in many areas and inflation has decimated people’s savings for more than two years.
You would think that those working in the investment management industry have a better understanding of how to thrive in the current circumstances.
Each month, This is Money is asking a senior fund or investment manager a series of questions that will force them to take risks.
We want to know where they would invest over the next 10 years and what they would avoid.
On the bench: every month, we commission a fund manager. This month we speak to Ben Lofthouse, fund manager at Henderson International Income Trust
We will quiz our willing professional investors on the future of inflation, interest rates and the housing market.
Among other things, we will ask your opinion on gold, Tesla and bitcoin.
This week we speak to Ben Lofthouse, fund manager at Henderson International Income Trust plc (Hint).
The investment trust has an internationally diversified portfolio of between 50 and 80 companies that are listed, registered or whose principal business is in countries outside the United Kingdom.
Its goal is to provide shareholders with a growing annual dividend as well as capital appreciation.
1. If you could invest in just one company for the next 10 years, what would it be?
Ben Lofthouse replies: Despite its performance, Microsoft remains the fund’s largest holding. It has taken a dominant position in many areas of technology that look set to grow for years.
2. What about the next 12 months?
The asset management industry is very cheap. we own amundi in the background.
If rates are lowered and asset prices rise, the sector would benefit, but that is not factored into the price.
Bet on Microsoft: Ben Lofthouse believes Microsoft has a dominant position in many areas of technology and looks set to continue growing for years
3. What sector excites you the most?
The technology sector is fascinating. There are many cycles, not just artificial intelligence, and some are just beginning to accelerate.
It is one of the fund’s largest exhibitions.
4. What sector would you be avoiding?
The media continues to be a difficult sector. There is a lot of innovation and disruption. I find it difficult to have the confidence to identify which value stocks could deal with the changes effectively.
Amundi: If rates are cut and asset prices rise, Lofthouse believes the asset management sector would benefit, but Amundi has not yet set the price for this
5. Which country offers the best value for investors?
As a region, Asia is fascinating. China has affected sentiment, but remains a very vibrant region with many good value stocks.
6. Should investors target growth or value stocks?
Value: the style is still outdated and we cannot understand some of the valuations of many companies, they are too low.
At the same time, the rally in some areas of growth stocks is very limited and we cannot understand those valuations.
7. Tesla: Will it finally be boom or bust?
The company is now fully established, very profitable and very unlikely to disappear. I don’t think it’s going to go bankrupt.
It’s harder to say whether Tesla’s stock price is making you money, because it trades at a much higher valuation than other automakers.
‘Fascinating’ region: Although China has dented sentiment, Lofthouse believes there are plenty of good value stocks elsewhere in Asia
8. Is the housing market “safe as houses” or is it due to a crisis?
I don’t think there is a crisis because unemployment is very low despite slow economic growth, so people can pay their rent and mortgages.
I think prices are likely to be low for a while, like in the early 1990s.
Prices are already below inflation, so (homeowners) are effectively losing money in real terms, but not in absolute terms, and people can live with that.
9. Should gold be part of everyone’s portfolio?
I like assets that pay you something to hold them, or that can grow over time, which is why I’ve always had a hard time recommending gold.
It’s doubly difficult when interest rates are where they are. But I wouldn’t consider myself an expert on it.
Tesla is here to stay: According to Lofthouse, the electric car company is now fully established, highly profitable, and highly unlikely to disappear or go bankrupt.
10. Do you think Brexit has cost the average UK investor?
The UK market appears to have traded at a lower valuation than the rest of the world since Brexit, so possibly yes, some value has been lost for now.
The market could trade 20 percent higher and still be cheap.
11. Will interest rates bottom out again?
Predicting interest rates is very difficult. Most central bank experts are wrong most of the time.
I think it’s best to invest on the basis that they will change and make sure your investment isn’t solely dependent on a rate change assumption.
That said, I’m not convinced that anyone at the Bank of England wants to risk taking them back below 1 per cent so soon after inflation rates have risen so much, so I don’t expect rock-bottom rates any time soon.
Not a fan of gold – Lofthouse likes assets that pay him something to hold, or that can grow over time – so he’s had trouble recommending gold.
12. Do you think inflation is here to stay?
Similar to the previous answer, it’s best not to invest based on an assumption in any way.
If pressed, I assume an average inflation rate of 2 to 3 percent, as I don’t see enough economic growth to fuel it any longer, given current interest rates and demographics.
13. Has the Bank of England done a good job?
In retrospect, they waited too long to raise rates and had to raise them too quickly.
I don’t know if I would have been smarter. However, I’m not sure selling the bonds they bought when rates were low for a loss would work, and I would try to just let them mature instead of selling them, while cutting rates a bit.
14. You inherit £100,000 tomorrow. What would you do with the money?
It depends on your time frame for investing, but mine is quite long, so I would put a third in short-term government bonds, which I would then sell and buy stocks if the markets fell.
I would put another third in global stocks and the last third in small cap stocks.
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