Nick Clay, who co-manages Newton’s £4bn Global Higher Income Fund alongside James Harries, said quantitative easing is still responsible for the world’s growth and argued there are several signs of fragility.
“Everything feels better, but is it really better?” he said. “If it was, then the premise would be QE has, and is, working and if that is true then Ben Bernanke has managed to rewrite economic theory.”
He added: “In reality, all QE has done is delay the inevitable re-adjustment of global debt levels.”
Backing up his view, Clay pointed to the fall-out in US mortgage applications this summer after Bernanke, chair of the Federal Reserve, broached the subject of tapering.
He also pointed to other worrying signs such as the 10% rise in UK house prices year to date while wages have grown by just 1%, and companies’ continuous repurchasing and issuing of shares, which merely serves to “funnel” QE money back into the pockets of big businesses.
Given this, Clay said it was clear that escape velocity had not been reached and there still needed to be a material pick-up in full-time employment, a rise in real incomes and an increase in capital expenditure.
Cash rich – but not sexy
Against this backdrop, Clay said he still favours healthcare names like Novartis and Roche because the sector not only has attractive demographics but which he believes is moving into an “innovation” cycle.
The manager is also backing established tech names like Microsoft and CA, because even though they “aren’t sexy”, they are cash generative and have a competitive advantage because of the maturity of the business cycle.
