Day in the Life: Karen Olney, equity market strategist
05:45 If you work in equity markets you must get used to an early start. Most mornings I get up between 5:00am and 6:00am and leave my house in Kensington, west London, at 6:30am. Things tend to be rushed, so breakfast is a rare pleasure - I eat at work, if at all.
07:00 I aim to get into the office every day by 7:00am, in time for the morning meeting. This includes a round-up of everything that's happened in world markets overnight, as well as early morning corporate newsflow/results. European equity analysts discuss individual stocks which are likely to be affected.
It is a good opportunity to get a bottom up (stock-based) perspective on what's happening in the equity market. Equity strategists work from the top-down, macro perspective, predicting what will happen to whole countries or sectors, and focus on general themes that could move markets.
07:30 The meeting usually lasts around half an hour. When it's over my day can take any number of directions. The role of an equity strategist is incredibly interesting, simply because it's so varied. The main objective of my day is to come up with ideas for investment strategies.
I cover all sectors, so the strategies could involve anything from technology stocks to the more defensive stocks, like utilities. It's all about coming up with an interesting stance on a sector, spotting undervalued sectors/regions and developing original investment ideas. These are presented to the fund managers and institutional investors who are our clients.
I usually spend my time reading the day's newspapers, reviewing stock/sector valuations and reading research reports. I look for valuation anomalies: countries or sectors which are not valued in line with the rest of the market or in line with their own history. Looking for unfashionable investments is one of the best way of creating value, eg when they are out of favour.
These could soon be subject to corrective price changes and benefit those who previously bought into them. Sentiment can turn quite quickly, and a stock can soon become popular again!
To help identify anomalies, we use computer-based models. For example, we might run a dividend discount model. This calculates the present value of the dividends a company is expecting to pay its shareholders, and compares the result to the current price of its stock.
By running the model for stocks across whole sectors or countries we can help establish whether prices are over or under-valued. We also look at earnings momentum, or which stocks/countries are upgrading their earnings forecasts - rather than downgrading.
12:00 Lunch is a varied affair. We often work through the lunch hour, but client lunches and/or brainstorming sessions also take place. It's important to make/leave some time for inspiration, which is vital in this role. How we spend it really depends on deadlines to hand.
13:30 The day continues with a discussion of strategy ideas with some of our economists and equity analysts. As a strategist, I try to take an independent view both from the stock analysts and the economists. Although the economic backdrop is critical in any equity strategy, the good or bad news is often already in the market valuation.
Right now, stocks listed in Italy, the UK and Spain look cheaper than the rest of core Europe. They are the least cyclical markets in Europe and have been neglected during the past eight months because of the recent cyclical rally. We think there's some opportunity for some upside.
Defensive sectors like food producers, utilities and tobacco companies are also looking good value. When the market switches out of its cyclical obsession, the more defensive areas offer good value.
On the whole DrKW is quite bearish. We don't believe the current equity market rally will last. Instead of the economic recovery coming from typically solid fundamentals, we feel the current rise is partly due to artificial stimulus coming from the US.
The US government is facing re-election, and threw $350 billion of tax cuts at the economy earlier this year. That has created a burst of activity and rising markets. When the stimulus fades in the second half of 2004, we expect the market rally to fade as well.
Our message to clients is therefore, don't get carried away. There are still a few hangovers from the technology bubble that need to be sorted out, including household and corporate debt levels. We encourage clients to play the current rally, but to make sure they start taking profits while good news is still plentiful.
When markets anticipate any faltering of the recovery, they will start taking profits (selling stocks that have rallied) quickly.
15:00 Visiting clients is important. Meetings can take place at any time, but I prefer afternoons. We regularly see clients in London, but travel a fair amount as well. We try to visit the US and most countries in Europe about three times a year.
This is one of the aspects of the job I really enjoy. It's an opportunity to get into thought provoking discussions with chief investment officers and fund managers from a variety of investment houses (including hedge funds) about the markets and overall economic outlook.
16:30 Back in the office, I start writing our weekly five-page research note. We've found that producing one good idea weekly gets a lot of attention from investors. Last week's note was about stocks and sectors that are sensitive to a rise in interest rates, published on the back of the Bank of England's recent interest rate rise.
Day end I usually leave the office any time between 6:00pm and 9:00pm.Occasionally, when it has been a hectic week, I disappear a little earlier for some exerciseor other activity just tio clear my head.
Remember, inspiration is key and a fresh perspective on events/markets is crucial.
karen.olney@drkw.com
