iPads and pasties
If the last Budget demonstrated anything about the state of the Treasury coffers it convinced most of us that politicians have run out of ways to raise taxes while at the same time hoping to be re-elected.
The hot snack tax provided some amusing headlines but more importantly showed the limitations of indirect taxation. Interestingly much has been made of the lack of tax raised in southern Europe. However, given that tax penetration runs much lower there at least they have room for manoeuvre.
For the markets this occurrence is worrisome due the fact that recent growth forecasts for the UK of 0.4% GDP* are less than convincing.
Tax is only part of the equation and with growth remaining subdued, markets will remain focused on any signs of a faltering recovery in the US which may once again lead to a potential “sell in May” year for investors.
If we are approaching a repeat of 2011 then, in my view, stock selection will remain key and one thing the market should reward is solid balance sheets.
On a recent trip to an Apple Store I was amazed at the queues of people waiting outside to buy the new iPad 3. Apple continues to make supernormal profits and the question remains whether they can keep on making new and attractive products the world wants to buy. However, in the meantime they are building one of the strongest balance sheets in the market with over $100 billion (£61.94 billion) in cash with no debt.
The importance of a strong balance sheet goes beyond the numbers as it provides investors with ballast and even more so in a world recovering from a balance sheet recession.
There are a few but growing number of companies that fall into this category which when taken together offer long-term stock pickers the opportunity for a smoother ride through the macro storms the market is likely to incur while picking up a growing dividend along the way.
*Ernst & Young ITEM Club
Oliver Pearson-Lund is investment manager in the Jupiter private client team.
Have you looked at investment trusts more since RDR?