As 2017 draws to a close, investment experts have been looking into their crystal balls to assess economic prospects for the coming year and the funds and investment trusts that could benefit.
While there seems no end to the equity and bond markets’ enduring bull run and many managers remain positive on prospects for 2018, there is increasing concern among other commentators that investors could be in for a nasty shock as markets are in bubble territory.
Andrew McHattie, who runs the Investment Trust Newsletter, sums it up: ‘We still speak to plenty of managers who are positive on the prospects of extracting more value from coordinated global growth, but we are also aware of a growing hubbub of cautionary voices.’
Examples among the investment trust world include Neil Woodford, the manager of the Woodford Patient Capital Trust, who has warned that ‘there are so many lights flashing red that I am losing count’. Alastair Mundy of Temple Bar Investment Trust agrees, arguing that there are not enough cheap stocks available.
‘Conflicting views are what make markets function, of course, so we’ll see what 2018 brings,’ adds McHattie.
For those looking for inspiration – whether to exploit areas of relative value, to take advantage of successful approaches in particular markets or to position their portfolio more defensively – we’ve rounded up some ideas from leading brokers and fund managers.
Tom Stevenson of Fidelity is ‘more cautious’ looking ahead than he was in 2017, and expects ‘some more volatility in markets in 2018’. ‘After a year without even a 5% pull-back, I would be surprised if we did not see one in the next 12 months,’ he says.
He is looking for opportunities in regions that are still behind the main equity bull market led by the US, and favours Europe, where ‘sentiment remains at a low ebb, relatively speaking’. He believes the region is ‘a treasure trove of excellent companies that will benefit from the ongoing global pick-up in activity’, picking out the value-oriented Invest Perpetual European Equity Income fund. ‘If economic recovery picks up then this fund could have its moment,’ he explains.
He also recommends ‘another out-and-out stock picker’ to take advantage of what could well be a sideways-moving market, in the shape of a home-grown fund, Fidelity Global Special Situations – ‘an unconstrained global fund which can chase opportunities wherever in the world the manager finds them’.
For Asian exposure, including to the likes of the high-flying Tencent and Alibaba tech stocks, Stevenson selects Old Mutual Asia Pacific. ‘With sentiment likely to be more volatile next year, I like Old Mutual’s focus on this key driver and the manager’s ability to move in an agile way between stocks and sectors as the market mood shifts.’
Darius McDermott of FundCalibre identifies several areas that he believes could thrive in 2018, starting with emerging markets. ‘Despite having done well this year, we believe many areas within emerging markets are attractively valued relative to many of their developed market counterparts,’ he explains. His pick is Lazard Emerging Markets, whose manager he considers a ‘particularly adept’ stock picker.
Like Stevenson, McDermott is positive on Europe: ‘Improving economic growth, increased political stability and falling unemployment levels have bolstered sentiment in Europe, with M&A activity in the region picking up and IPOs continuing to come to market. That said, there are still pockets of value which can be captured by selecting the right managers.’ Marlborough European Multi-Cap is his favoured choice, on the grounds of its diversity and overweight exposure to smaller companies.
He also likes Japan, which remains relatively out of favour with UK investors but where Prime Minister Shinzo Abe has a powerful mandate for his business-friendly reforms. Baillie Gifford Japanese is his pick.
At broker AJ Bell, Ryan Hughes takes a slightly different approach, offering a selection of funds to suit different risk appetites in the face of concerns that we may be moving into bubble territory. ‘Calling the top of the market is simply a guessing game and we currently have some of the most experienced investors in the market at odds over the outlook for equities,’ he says.
Cautious: Given that equity markets are hovering around all-time highs and fixed interest markets appear ‘challenged’, Hughes suggests Troy Trojan as a multi-asset solution with ‘a very clear eye on protecting capital’ for cautious investors.
Balanced: Hughes too stands in the pro-Europe camp, as the region’s economic recovery continues; he believes the Crux European Special Situations fund could be well placed to benefit. This high-conviction fund ‘focuses on companies that have exceptional management and a market leading position’, typically mainly among medium and smaller businesses.
Adventurous: Japan is his choice for adventurous investors, and he too selects Baillie Gifford Japanese. ‘The team at Baillie Gifford are one of the strongest around; with a strong focus on stock picking and a willingness to look different from the index, this is a good choice for higher risk investors,’ he says.
Income: Hughes points out that the UK’s dividend-paying culture makes it a good choice for income seekers, but that it’s worth looking beyond the few high-profile big fund names that dominate the sector. River & Mercantile UK Equity Income has ‘a very experienced manager and with a quantitative screen underpinning the process, this diversified portfolio will be a good foil to other better-known equity income funds.’
Many tipsters are focusing their ideas on Europe and Japan, but Brewin’s Ben Gutteridge makes some suggestions for investors looking for the best bets in other areas as well.
In the UK, Gutteridge says that so-called ‘GARP’ funds targeting growth at attractive prices ‘should make for a sound investment strategy in 2018’. He picks the Man GLG UK Income fund which has ‘both growth and value features and within those value characteristics a premium dividend yield to the market’.
Source: Continue with the news at https://www.marketviews.com/faith-glasgow/investment-ideas-for-the-year-ahead/