Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined by Simon Evan-Cook of Premier Asset Management.
Hello, Simon.
Simon Evan-Cook: Good morning.
Wall: So, you are a multi-asset manager, which means you have the luxury of looking across all assets and all markets. Where are you feeling worried about today?
Evan-Cook: Well, there's one place that stands out for me if we're talking in equity land and that is U.S. equities. And the thing is about U.S. equities because so much of the media noise and so much of the studies are done U.S. equities that creates the impression that all equities are expensive wherein I really don't think that's the case. But U.S. equities for us, it's not a Donald Trump thing. I mean, he worries me on some levels, but it's not to do with equities. That is down to valuation.
I mean, the way we do it is we look at long-term valuation measures, particularly the Shiller PE, which is the 10-year average of earnings, and that currently is on about 29 times and that's only being betted, as in worsened in 1929 and in 1999, so your famous market peaks, famously bad times to be buying equities and that's where we're approaching now. But it's not the case in the rest of the world.
Developed markets ex that you're probably looking at about 14, 15 times. They're not cheap but all right and emerging markets maybe on 12 times or so because they are not particularly liked at the moment. So, there's a lot to go for in the world of equities. It's just that it's the big lump, which is U.S. equities, looks too expensive in our book.
Wall: And the thing about finding somewhere too expensive is you got to sell it and the thing about selling something is you got to buy something. So, where are you reallocating that cash?
Evan-Cook: Well, I mean, you say that's difficult, but it's only difficult if you're a U.S. investor because if you're a U.K. investor, I don't need to hold U.S. equities. I can quite simply say, no, thank you. And that's effectively what we're doing across most of our funds because I can go on and buy shares in the U.K., in Europe, in Japan. I mean, literally anywhere else in the world but the U.S. I mean, it's a big world out there. There's loads to go for. So, we're having no trouble finding good investments currently. It's just are you brave enough to step away from U.S. equities, which have been the best performer over the last seven or eight years, but look sort of nose-bleedingly expensive.
Wall: And you mentioned the U.K. and Japan there as potential investments. Is that where you're reallocating cash?
Evan-Cook: Yeah. So, particularly, U.K. and Europe at the moment. They are disliked because of Brexit, because of the politics situation. But economically, it's okay. I mean, I'm not going to sort of say it's amazing and the European economy is going to go places you wouldn't imagine at the moment. But there are companies there that are doing fine, but they've been marked down because of Brexit or they've been marked down because of the European political mire and it's always valuation that dictates your future returns.
It's never about what politicians are going to do or what the economy is going to do. So, yeah, that's where we're allocating. And Japan as well, you've got decent valuations there, bottom of their sort of historical range currently. And again, it's a place where active managers can really make you an extraordinary amount of alpha because the market is so inefficient.
Wall: U.K. and Europe have enjoyed very solid returns over the last three years. Do you expect that to continue or are you expecting slightly muted returns versus the last three years?
Evan-Cook: What I won't do is give you a prediction over anything as short as three years or one years. All I can say is that I think for the next seven to 10 years, which is the horizon you should have, I think you'll make decent returns.
Now, that might be every year you make an okay return or it might be that it's okay, it's great and then in year three, it's absolutely terrible and then gets better after that. I do not know that the journey is going to look like and I don't even bother trying to predict that. I just know that if you invest today and you're investing for your pension or for your ISA or to pay off your mortgage or whatever it might be, it's a pretty reasonable time to invest.
Wall: Simon, thank you very much.
Evan-Cook: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
