In a turbulent economy with managers moving left, right and centre, it would be understandable for any investor to be hesitant when deciding where to allocate their money. The economy has been up and down over the past five years and no one asset class has been a completely stable or safe bet. In the UK alone, the year ahead looks set to be full of excitement, with the run up to the general election in 2015 and the Scottish independence referendum in September this year.
With this in mind, where are fund managers finding the best opportunities in their space? Here we look at six asset classes where managers are finding value for 2014.
European high yield
Given the circumstances in Europe over the past five years, investors would be forgiven for having concerns when it comes to investing in the continent.
But one manager hopes to find a way around any worries. Mike Della Vedova, manager of the T. Rowe Price European High Yield Bond fund, says European high yield remains an attractive asset class this year for many reasons.
Default rates are expected to fall further, to 2 per cent, at a time when the economic recovery in Europe is beginning to take hold, helping issuers on a fundamental basis, he says. While the ability of the European Central Bank to remain accommodative for the foreseeable future will be supportive for European high yield securities. Mr Della Vedova predicts higher coupons will reduce duration risk, while at the same time offering attractive income in a low-yielding environment.
In fact, the European high yield market has tripled in size since the 2008 market crash, with new companies and “fallen angels” boosting the market, Mr Della Vedova says. “The increased liquidity, depth and diversity offer investors more security selection opportunities.”
While capital gains on existing issues may be limited going forward, he sees value in new issuers coming to the market for the first time. “Last year, nearly 40 per cent of the issuance came from first-time issuers, offering opportunities for fundamental bottom-up investors.”
The fund has a strong preference for B-rated names, where the premium still compensates for risk. “Companies from telecommunication, wireless, broadcasting and cable industries - as well as issuers from services and consumer cyclical sectors - constitute around 50 per cent of our allocation today,” he adds.
Credit
Dan Roberts, head of global fixed income at MacKay Shields - which looks after $80bn (£48bn) of assets - runs the Nordea 1 Unconstrained Bond fund. Recently launched, it currently has a sizeable allocation to higher yielding bonds, as the manager looks to emphasise credit exposure while minimising interest rate risk.
