The recovery in global share markets will be led by large companies with low debt levels and access to shrinking credit markets, agreed two chief investment officers visiting our shores last month, with providers of “real assets” and those with technological leadership expected to lead the charge.

The CIO of Martin Currie, James Fairweather, said the Edinburgh-based “growth at a Scottish price” manager was finding plenty of cheap large cap opportunities, after mid-cap exposures hurt it in 2008 and led to a 16 per cent underperformance of the MSCI World benchmark (its flagship Global Alpha fund has added 2.18 per cent to the MSCI World since its 2002 inception).

“Around the world we’re finding that regulatory attitudes to big monopolies or oligopolies has softened a lot – you’re not going to stop any business that’s employing people and growing at the moment,” Fairweather said, adding that large companies would be able to dictate acquisition prices to smaller competitors.

The manager’s largest active overweight is McDonalds, a classic recession play according to Fairweather, while a less likely pick is Toyota. The Japanese carmaker’s stock went up in January despite the horror stories coming out of its competitors, and Fairweather points out it has US$7 billion of cash and US$5.5 billion of free cash flow.

“It’s competitors are grappling with green car development but it’s already got the Prius, and the most flexible product line in the industry, everything from the Prius to the SUV,” he said.

Martin Currie, whose 30-45 stock process was recently awarded $300 million by Mercer’s multimanager funds, is also bullish on at least one stock in a sector even less likely right now than carmaking – banking. Fairweather said Spain’s Santander Bank “has not really put a foot wrong” since the global financial crisis ripped through its industry, commending it for picking up pieces of ABN Amro and Bradford & Bingley which “fitted its business model”. A more obvious pick for 2009 is Google, which Fairweather said had been virtually the only internet business to make money, thanks to constant innovation.

“Google has a real opportunity to monetise YouTube this year,” Fairweather says. This year also presents a “once in a lifetime” opportunity to sell out of government bonds after their massive rate cut-fuelled run in 2008, according to chief investment officer at London’s Bedlam Asset Management, Ian Mc-Callum. Bedlam is also following the “big is beautiful” theme, agreeing that industry consolidation will be a key dynamic, but that won’t be enough to tempt Bedlam into mid- or small caps.

“A prime example is the pharmaceutical sector, where several hundred small companies are slowly expiring into bankruptcy,” McCallum said. “The 20 major groups worth more than US$20 billion will be able to cherry pick. Investors should remain focussed on industry leaders with strong franchises, good free cash flow and attractive valuations. Market share will gravitate to those that already dominate their industry.”

McCallum nominated Pfizer as one pharma giant to watch in regards to this theme. Bedlam, whose concentrated
process has one Australian client in Perpetual’s WealthFocus multimanager trust, is also favouring companies with sustainable dividend yields – telcos are seen as the most reliable suppliers of this once-forgotten source of return –
and those exposed to “real assets”.

As central banks fire up their printers and debase the value of paper money, McCallum said that any “real asset” whose supply could not be increased at the same pace as money would benefit. Agriculture, precious metals such as gold and selective Asian property markets such as Japan and Hong Kong all fitted the bill, McCallum said.

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