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Winter Investment Monitor - December 2013



    The Celsius investment sentiment survey – a quarterly indicator produced by the Financial Times – reveals a cementing of advisers’ confidence in the UK as they return to UK equities.

    Their appetite for the UK gained 22 points in the fourth quarter of 2013, outstripping all other regions and pushing the UK to the top of the index. This means the UK will be the most likely beneficiary of adviser fund flows in the coming quarter. The three most favoured sectors for the quarter were IMA UK Equity Income, IMA UK All Companies and IMA UK Smaller Companies.

    The performance of UK small caps suggests advisers’ concerns about the UK are easing; small cap outperformance points to a sustainable UK recovery, rather than another false dawn.

    Similarly, the latest Celsius survey found developed economies outstripping their emerging counterparts in the sentiment stakes. Investors are pulling back the wall of money they pushed into emerging markets when western credit markets gridlocked. The IMA Global Emerging Markets sector received the sharpest sentiment contraction of all sectors this quarter, down 28 points, while each of the emerging market regions also lost some of their appeal: Brics -20, India -19, Latin America -12, Asia Pacific ex Japan -11 and China -1.

    Global market integration is leading to a convergence of returns from emerging and developed markets, an increase in asset correlation and a fall in demand for emerging market assets. Without an unexpected wobble of western markets, the decline in adviser appetite for emerging markets is likely to continue into next year.

    Potential market wobbles could be caused by any sharp moves by the US Federal Reserve or a catastrophic action in the eurozone, which would likely entice investors back to emerging markets, not least because emerging market equities are already trading at lower valuations than at any period during the past few crisis years.

    Risk appetite is reasserting itself with advisers. Equities, both income and growth, have stormed ahead in the Celsius index, with all other asset classes neutral or negative. The proportion of equities in Oeics’ total holdings reached 55 per cent in July, the highest level since 2010. This adds substance to the much debated “great rotation” from fixed income into equity funds.

    Confirming last quarter’s Celsius watch list, IMA Property has shot up 27 points this quarter, catapulting the sector into positive territory for the first time since the second quarter of 2011.

    Anna Lawlor is a freelance journalist

    Where to invest

    It seems advisers’ appetite for ethical or socially responsible investments waxes and wanes with immediate past performance. The volatility of sentiment in this area will be worth monitoring and could provide an opportunity for high-profile fund providers in this area.

    Property should continue its upward march on the Celsius index as confidence returns to the property market. Signs of a breakneck return to property should cause concern, though, as the asset class deserves a measured allocation in many portfolios – signs of another property-related bubble will trigger fund flow (and price) volatility.

    Confidence in the US has been subdued this quarter, which is a surprise given that its stockmarket performance has been in line with that in the UK and Europe. With more clarity from the Federal Reserve now, it will be interesting to see whether appetite returns in the next Celsius survey.

    In this special report


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. What percentage of total M&A activity is represented by the financials sector?

    2. Which UK equity income fund has been the most popular in terms of real fund inflows according to Investment Adviser research?

    3. What is the revised UK growth prediction for 2014 from the Office for Budget Responsibility?

    4. In what month next year is Anthony Bolton set to retire from Fidelity for the second time?

    5. Which two veteran managers will leave Jupiter in 2014?

    6. Who manages the Unicorn UK Income fund?

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