UK equities are on the brink of entering a new bull market, according to Richard Buxton, head of UK equities at Schroders.
The FTSE 100 index has passed the low point for equities of 3500 twice in the past 12 years and is now on a road to recovery, he says.
His confidence has also been bolstered by UK companies with strong balance sheets, good cash flows and rising dividends, with many of their shares yielding more than their corporate debt.
Over a decade ago, Mr Buxton correctly warned investors that equities would go sideways for at least 10 years. He said that with a starting price/earnings (PE) ratio above 20 times, the stock market would struggle.
But working on the assumption that starting valuations will drive gains, rather than the economic outlook, today's starting valuations indicate the potential for strong returns, he says.
Highlighting the cyclical nature of the equity cycle, he says the long-run trend is made up of a series of escalator-type movements. "There are extended periods of fabulous returns, and extended periods where there are no returns at all.
"Outflows from equity funds are unrelenting and money continues to pour into bonds. For 12 years, equity investment has delivered lots of volatility and precious little returns, which has led a scarred generation of investors to search for 'safe havens'."
But not everyone agrees we are in for a bull run just yet. Ian Spreadbury, portfolio manager of the Fidelity MoneyBuilder Income Fund, warned: "In nearly 30 years of investing, I have not known an environment as risky as the one today."
He says corporate bonds are a better investment than equities because the environment of 'financial repression' we are in today is likely to continue for some time.
"This is because central bankers and politicians remain welded to austerity and ultra loose monetary policy. It's understandable - they are eager to improve fiscal balances and avoid prolonged economic contraction. It is likely that this will extend the low growth, low inflation and low interest rate environment we see today with significant tail risks attached," he says.
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