June 2009
May was another good month for equities and small companies continued to rally though
their performance wasn’t quite as strong as for their larger counterparts. There is a growing
level of appetite for risk amongst investors as evidenced by the out-performance of more
cyclically exposed companies. This is being driven by the perception that macroeconomic data
is stabilising and that a full scale depression has been averted. This scenario looks increasingly
likely but it should be remembered that we are still in a recession and it is still unclear both
when recovery will begin and how strong it will be.
During the month we topped up the holdings in Oxford Instruments, RM and
Bloomsbury Publishing.
Despite the recent rally small companies continue to trade at a discount to large companies.
Whilst this is to be expected it is worth noting that neither large nor small companies appear
expensive in their own right, trading on price earnings multiples that are low by historic standards.
There is potential for a further re-rating of equities though it would seem likely that at some point
investors will want to see tangible signs that we know where the bottom of this cycle will be in
order that they can have confidence in an eventual recovery. We remain committed to focussing
on good quality businesses with strong balance sheets and transparent earnings and cash flows.
Source: Monthly Factsheet Aberdeen Asset Managers Limited