Henderson investment chief tips FTSE to finish year near 6,000

The head of equities at investment group Henderson has tried to reassure investors with a forecast that the FTSE 100 could rise 15% by the end of the year.

Bill McQuaker has returned to an overweight position in equities (shares) in anticipation of a second half recovery after a rocky first half in the UK stock market, although he remains concerned over inflationary pressures in the economy. 

‘In March and April all people talked about was strong earnings and the great economic backdrop. The truth is, all this stuff has not gone away,’ says Citywire AA-rated McQuaker. ‘Markets have been too broad-brushed by the sovereign debt crisis. While I expect there to be more volatility in the summer, I also expect markets to be 15% higher by the end of the year.’

Such a rise would see the FTSE 100 rise from its current level of around 5,174 to end the year at 5,950.

McQuaker, who is celebrating five years running the £400 million Henderson Multi-Manager Income & Growth fund, believes the UK is one of the world’s most interesting equity markets. The country represents his biggest geographical asset allocation call, at 16.5%.

‘There’s a perception that the debt problems in the UK are the same as the likes of Spain,’ McQuaker says.

‘The market has got this notion firmly in its head and while I can see why it may think this, there are a number of developments in the UK that could challenge this assumption.’

McQuaker points out that in nominal terms, the UK has grown beyond 7% in the last two quarters through a combination of inflation and real growth. He also underlines the crucial impact the rise in tax receipts will have on helping clear the nation’s fiscal deficit.

‘Tax receipts are up 13% year-on-year and there is data to suggest we are past the worst stage of the debt phase. So we have an economy that is growing rapidly and a tax system which is taxing it efficiently. We have an emergency budget coming up, which should allow the coalition to lay out a compelling financial strategy.’

He says it is essential that the coalition comes up with sensible tax cuts and does not impose draconian measures in an attempt to clear the deficit. ‘If this [the Budget] is delivered against the backdrop of improving data, the UK market could surprise on the upside.’

However, McQuaker is concerned about the impact inflation will have on the UK over the longer term. ‘The authorities are trying to encourage inflation to help nominal growth and deal with the debt problem. My suspicion is that growth and inflation will become a feature of the cycle. Policymakers will be nervous about tightening too soon.

He adds: ‘While the growth/inflation mix looks good for equities, at some point it will turn nasty and policy-makers will say enough is enough. This point, which I expect to arrive in 2012-2013, will lead us into the next recession.’

McQuaker has delivered 55.6% growth on the Multi-Manager Income & Growth fund in the five years to the end of April. This is about double the average return in his sector and ahead of the 44.7% rise in his LCI UK & International Balanced index.