Ignis: Patience and stock picking will be key in 2009

Patience and quality stock picking will be the key to achieving decent returns from the US stock market this year, according to Terry Ewing and Alison Porter, co-managers of the Ignis Asset Management American Growth Fund.

The fund has outperformed the North American sector average by 2.5%, 3.26% and 1.24% over one, three and five years respectively. The managers believe the US stock market will finally begin to reward stock pickers this year after indiscriminate sell-offs in 2008 punished quality companies with high cash flows and good earnings prospects.

Although they expect bleak economic news, particularly in terms of rising unemployment, to provide a major headwind to sentiment over the coming months, the managers believe mid-2009 will mark a low point for earnings. A particular focus is on those companies set to benefit from President Obama's forthcoming US fiscal stimulus package and those able to exert increased pricing power as a result of consolidation and reduced competition. They also expect to see a significant pick up in strategic M&A activity in 2009 with companies being forced to seek new growth avenues and cost cutting opportunities.

Low-end consumer stocks such as Wal-Mart and McDonald's are another major focus in the near term, along with the managers' long-standing investment themes, which include energy efficiency and infrastructure development.

Earnings expectations have been lowered for the first half of 2009, but the risk remains that expectations of a recovery in the second half are overly optimistic. However, Ewing and Porter believe greater discrimination between business models and management teams - even in the beaten-up sectors such as financials and technology - will create a better environment for stock pickers.

Alison Porter says: "It is currently a balance between high quality firms with good cash flow and earnings visibility and those which have been beaten-up enough that their valuations already reflect the worst for the economic environment. Signs of economic stability are required to see a big shift towards the latter.

"One of the leading indicators will be the housing market, which has been in decline for two and a half years and will recover at some point. Policy action and mortgage rates are going in the right direction but it will be hard to stabilise the housing sector when unemployment remains so high.

"2008 was not a great year for stock pickers - it was all about sector positioning. This year we expect the market to discriminate and it will be a much better environment for fund managers seeking to add value through stock selection."