InvestmentsMar 16 2015

Predictions of 100 Club experts

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As the first quarter of 2015 nears its close, Nyree Stewart asks a panel of fund selection experts, including the judges of the 2014 Investment Adviser 100 Club Awards, for their predictions for the next three months and the longer term.

Paul Surguy, Kleinwort Benson

THREE MONTHS

Neutral/Bearish

We have many ‘known knowns’ this year: the election in the UK will be at the forefront of most local investors’ minds. More widely, the prospect of the first rate rise across the pond will finally prove that interest rates cannot stay at record lows forever, no matter how carefully worded Janet Yellen’s guidance. At the same time, Europe will be pulling in the opposite direction, flooding the economy with liquidity in a (possibly) final throw of the dice to avoid deflation. Holding cash in the short term is more palatable than might often be the case. Opportunities will present themselves and dry powder will be welcomed.

LONGER TERM

Neutral/Bearish

While history does not always repeat, it often rhymes: we know that markets that rise for extended periods will have a setback. The average bull market in equities since 1932 has seen a rise of 165 per cent, almost exactly where the current return sits. Government bonds are, in the main, priced relative to the relevant central bank base rate, which are all at historic lows. This gives only one longer-term direction of travel, unless the whole world has turned Japanese. There are pockets of value to be found in equity and fixed income, seeking out investors that can differentiate themselves from the pack. The current theme of ‘high active share’ is likely to persist.

James Calder, City Asset Management

THREE MONTHS

Neutral

Divergent central bank monetary policies in the developed world may well lead to confusion over the short term, with the ECB loosening and the US tightening this year, potentially over the summer.

We remain wary of the fixed income markets but believe some equity markets provide value, whereas others are likely in momentum mode.

LONGER TERM

Bullish

Over the medium term, we remain bullish on global equities, but on a selective basis. Within the UK, we are positive on the direct property market, particularly within the secondary market as yields remain attractive, as do asset enhancement opportunities. Our negative view on fixed interest is medium-term and will only change after the rate cycle reverses.

Gavin Haynes, Whitechurch Securities

THREE MONTHS

Neutral

With UK and global equity benchmarks having rallied to new highs recently, I would not be surprised to see an increase in volatility and a bit of short-term profit-taking. The lack of inflationary pressures means that I expect bond markets to be supported in the short term. We have no gilt exposure, believing political uncertainty could see yields rise. Our central case scenario is that the UK and global economy will remain in the steady growth and low interest rate environment for the rest of 2015. European QE could drive asset prices higher. However, given the level of uncertainty, you don’t want to be too brave and it will pay to maintain a diversified approach.

LONGER TERM

Neutral/Bullish

I continue to see good opportunities across UK and global equity markets. I expect interest rates to remain lower for longer and believe that companies that can grow dividends will be sought after at home and overseas. Given relative valuations and the stage in the recovery cycle, we prefer Europe and Asia versus the US stockmarket. On valuation measures, in relative and absolute terms I see little value in most areas of bond markets. While we believe rates will be lower for longer, I am not in the long-term deflationary camp. When interest rates do edge up, areas of bond markets will get exposed. It is an asset class we are selective and underweight.

Jim Wood-Smith, Hawksmoor Investment Management

THREE MONTHS

Neutral/Bullish

The global economy appears to be taking a turn for the better. American credit growth is increasing, Europe will see the benefits of QE and the oil price is a lovely bonus. The wild card is China, where we are worried that the economy has slowed more than official data imply. Global equities have performed spectacularly well [recently] – a pause would be healthy. Bond markets are sensitive to short-term news and 2015 has been a rollercoaster. Yields fell far too low in a misinterpretation of deflation and in response to European QE, but have risen back to where they started the year. We expect yields to drift upwards as markets focus on the likelihood of higher base rates.

LONGER TERM

Neutral

Our concern is that debt levels have risen massively since the end of the financial crisis and that interest rates are going to rise. The impact will be just as much of a step into the unknown as QE was. So long as nominal returns on cash and bonds remain so low, it is hard to see anything other than equity remaining the first-choice asset class. Higher ratings will eventually be capped by an increase in supply. The world is in a prolonged period of low core inflation, with large fluctuations from non-core energy and food prices. The global economy is edging back towards ‘normal’ growth, whereas bond yields are still at crisis levels, which should mean that the trend in yields is turning up.

Kevin Boscher, Brooks Macdonald International

THREE MONTHS

Neutral

The US economy is not immune to the growing global deflationary forces. As other countries seek to weaken their currencies to stimulate activity, this is putting upward pressure on the dollar, which is a form of monetary tightening as it negatively impacts corporate profitability and exports. Analysts are lowering their profit forecasts for US firms at a time when valuations are a little stretched. Also, while the eurozone appears to have resolved its differences with Greece, the compromise is not a long-term solution. Looking beyond the next few months, we remain positive on the prospects for most financial markets, especially as cash will continue to offer poor returns.

LONGER TERM

Neutral/Bullish

Financial markets have enjoyed a strong start to 2015 and the global macro environment remains supportive for risk assets, and equities in particular. World economic activity is gradually strengthening, but will remain below its long-term trend for some time due to a number of factors. In addition, growth is increasingly diverging, with some economies improving – most notably the US – while others struggle. Low inflation and the threat of deflation in some countries remains a dominant theme. We believe the cyclical bull market for equities is intact thanks to this helpful macro background, together with reasonable valuations and a broadly stable earnings outlook.