EDINBURGH Partners, the investment house run by fund management industry veteran Sandy Nairn, has highlighted its hopes of winning more business from North America after unveiling a slight fall in annual profits.
The asset management house, which is chaired by venerable Scottish merchant banker Sir Angus Grossart, made pre-tax profits of £21.5 million in the year to February.
This was down from £22.9m in the previous 12 months, and £25.9m in the year to February 2012.
Revenue in the 12 months to February 2014 was £38.5m, down from £39.5m in the previous year.
Average funds under management in the year to February 2014 were £8.15 billion, down only marginally from £8.18bn in the previous 12 months.
Citing potential for Edinburgh Partners to attract inflows of new funds on the back of recent investment performance, Mr Nairn said: "With the performance coming through in a couple of product areas in particular, I think we are quite optimistic about flows in the coming year. I think we see opportunities out of North America ... where the client base are."
Clients on the other side of the Atlantic generally award mandates to fund houses such as Edinburgh Partners to invest money in global equity markets outside the US.
Edinburgh Partners' capital and reserves had climbed to nearly £49.5m by February, from £43.8m at the previous year-end.
Weighing the global stock market backdrop, Mr Nairn, who set up Edinburgh Partners in 2003 after deciding to move from his post as chief investment officer of Scottish Widows Investment Partnership, highlighted his belief that Japanese equities were, overall, undervalued. He also emphasised his view that US equities were overvalued.
Mr Nairn said: "We have had a 20-year bear market in Japan, where share prices have gone down from a very high level. Eventually, they reach a level where companies are not overvalued any more. That has been hidden because of the after-effects of the Japanese earthquake and tsunami and now it is being revealed."
He highlighted the surge in the yen that had resulted from the repatriation of Japanese capital following the 2011 disaster. He noted this leap in the yen, which since reversed, had placed Japanese exporters at a disadvantage.
Mr Nairn pointed out that the yen had risen by 40 to 50 per cent against the South Korean won amid this repatriation of capital.
Mr Nairn cited electronics giant Panasonic as one of the Japanese equity holdings favoured by Edinburgh Partners, noting this company also had a big presence in battery technology for the likes of electric cars. Among other Japanese equity holdings are banking group Sumitomo Mitsui.
Mr Nairn said of Japan: "It is still our biggest exposure."
Edinburgh Partners' view on Japanese equities contrasts with its stance on US stocks.
Mr Nairn said of US equities: "I just think valuations are way too high. It is not particularly that I see any incremental problems in the US economy. I think profit margins are at cyclical peaks. As a consequence, you can't sustain the valuations we have got."
But he noted the strength of US equities had already lasted longer than he had expected.
Summing up Edinburgh Partners' stance on global markets, Mr Nairn said: "I think Japan is cheap and I think US is expensive. [That] pretty much covers the global picture. I don't think, in aggregate, markets are still cheap. They are at best on the wrong side of fair value. It doesn't mean it can't continue for a while."
Mr Nairn meanwhile flagged the benefits that had resulted from Edinburgh Partners' decision about a year ago to invest funds in pharmaceuticals firm AstraZeneca, which rebuffed a bid approach recently from US giant Pfizer and has enjoyed a sharp rise in its share price over the last year.
He also cited a good performance by a global emerging market equities fund established by Edinburgh Partners. The investment house employed an average of 59 staff during the year to February 2014, down from 61 in the previous year.
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