Global Recovery Underway with Positive Equity Returns Expected

News Release, 27 August 2009

The global economic recovery is underway with the market likely to continue its upward bias for the remainder of the year, offering investors good opportunities to generate positive returns from the equity market, according to boutique investment manager PIE funds.

Managing director Mike Taylor says, “Although we only expect modest growth in equities for the remainder of this year, this upward trending market offers investors the opportunity to generate good returns by picking the right stocks. A stable economic environment gives companies a chance to shine without the dark cloud of financial Armageddon hanging over them.”

Taylor has reason to be optimistic since the Pie Australasian Growth Fund that he manages is up 60% year to date from 1 Jan to 17 Aug 2009. The fund has significantly outperformed its two benchmarks, being the ASX Small Companies Index which is up 37%, and the NZX Small Companies Index which is up a mere 14% over the same period.

Last year Taylor sold a substantial portion of the equities held in the fund and switched into cash starting the year with only 20-25% of the fund invested in the equity market. Between March and May, the fund started to invest in good growth companies that were undervalued as a result of the financial crisis. Taylor says, “A lot of small companies that were fundamentally sound businesses had simply fallen under the radar of the market and their share prices had been obliterated. We pick stocks that have low or no debt, strong cashflows and good growth potential and this strategy has paid off.”

Taylor says all the indicators show now is a good time to be invested in the equity market. Long term technical indicators have turned positive and there is an increasing supply of good economic news. “It looks like the recession for most Western nations including New Zealand will finish in the third or fourth quarter of this year, with 2010 likely to deliver modest growth. Remember the stock market is usually six months ahead of the real economy so that’s why the market bottomed in March 2009,” he says.

Other positive indicators that Taylor has used to determine the direction in the market include the recovery in corporate bonds, the firming in commodity prices in particular copper, the trough in interest rates, a recovery in auto sales and a peak in monthly net job losses. Taylor says, “This is not necessarily the peak level of unemployment and of course unemployment is a lagging indicator so I’d expect that to continue to rise into next year before hopefully peaking in early 2010 as jobs start to be created once again.”

History shows that following the end of a bear market and during the next 12 month period the market can have strong gains, particularly in the first 6 months, says Taylor. “We are now five months from the bottom and whilst I’d suggest that for the remainder of the year it would be unrealistic to expect to achieve the same type of return as we’ve had in the first half, we do expect modest growth and good stock picking is likely to generate solid returns for the remainder of the year.”

ENDS

For further information please contact:

Mike Taylor Ph: 64 9 486 1701
Managing Director Mob: 64 21 888 231
PIE Funds
www.piefunds.co.nz