Investment Adviser 100 Club predictions

Paul Surguy, Sanlam Private Investments

Three months: Neutral

• The significant moves we have seen in markets since the turn of the year will present opportunities. We have always viewed earnings as the key driver of performance, although this has been distorted by monetary policy since the credit crunch.

• As the noise of quantitative easing (QE) begins to disappear from the US, and minds begin to turn to the possibility of rate increases, we expect markets to remain volatile, both in fixed income and equities, offering better pricing points to take active positions.

Longer term: Bullish

• As mentioned in the shorter term outlook, the removal (or tapering) of QE, is a positive for equity markets as a clear sign that growth is beginning to become more entrenched and can survive without the artificial stimulus we have all become so accustomed to.

• This, coupled with stronger consumer sentiment and manufacturing indices, should support risk assets over the medium to long term.

James Calder, City Asset Management

Three-months: Bearish

• After the recent events in the Ukraine and their continuing developments, our short-term outlook for equities has moved to cautious. Much depends on the actions of the Russian bear and what, if anything, the west can do to prevent the annexation of the Crimea.

• We believe any effects are likely to be short-term in nature as Europe and Russia are highly interlinked with respect to energy supplies. Markets will react aggressively to newsflow and for the brave some exciting entry points may well present.

Longer term: Bullish

• We remain optimistic on equities as GDP growth across the developed markets continues its positive trend. The developed markets remain a favourite of ours, in particular smaller companies, although Global Emerging Markets and South East Asia will benefit over the longer-term.

• A rising rate environment is, on the whole, detrimental for fixed income investment therefore the majority of our holdings are held in long/short strategies and those of a floating rate nature. While our longer term view is for benign markets, growth rates will be lower than those experienced historically.

Charles MacKinnon, Thurleigh Investment Managers

Three-months: Neutral

• Over the next three months, our view is that we will continue to see uncertainty in developed markets and continued modest weakness in emerging markets. This period will resolve itself by the summer, at which point we expect the first impact of tapering to become apparent, and this will set the stage for a rally in developed markets into the year end.

• Within fixed income, we clearly believe that the worst is over and over the next three months anticipate a return that is in line with yield and credit risk.

Longer term: Bullish

• After a very strong 2013 and a weak start to 2014 we continue to think that there is good opportunity for double-digit returns from this point. Growth is apparent around the world, and the falls in commodity prices, coupled with continued low interest rates make for a positive environment for equities and risk assets.

• While we remain wary of inflation, we still feel that this is not yet a problem. We continue to expect continued deterioration for fixed interest, with yield barely compensating for capital losses. Government bonds will, however, provide stability in times of turmoil.

Stephen Peters, Charles Stanley

Three months: Neutral/Bullish

• We believe fundamentals remain relatively strong for equities, but price risk is increasing as the margin of safety on valuations is quite low. While we see little value in fixed income over the longer term, the recent increase in volatility across asset classes and potential for geopolitical shocks mean that current low yields can be justified within certain regions such as the US, UK and core Europe.

• Alternatives assets and investment strategies have long formed a core part of our portfolios to provide stability during volatile markets. We are particularly bullish on property in the short term as sentiment towards the asset class improves.

Longer term: Neutral

• Our overall expectations for equities over the longer term are only neutral in absolute terms. The long-term prospects for other asset classes are poor enough to make a normal return seem attractive.

• We believe we are entering a period of monetary tightening and as such yields must rise. There are sufficient props within the fixed income market to keep yields lower for longer so we do not expect a sharp reversion to normal yield levels.

• We expect demand for alternative assets and strategies to increase as investors seek to add diversification to portfolios.

Gemma Godfrey, Brooks Macdonald

Three months: Neutral

• After one of the broadest market rallies in more than two decades and with investor complacency high, we have entered a tougher period for generating steady returns. While the global economy has strengthened, the S&P has hit an all-time high. It is hard to justify increasing equity allocations at this point.

• The alternative space, which is able to either offer some downside protection while extracting upside gains, or exploit the widening divergence of returns within the stock market, may offer some attractive opportunities.

Longer term: Bullish

• Governments are unwilling to take ‘undue risk’ with the economic recovery, policy should remain supportive and rates ‘lower for longer’. Growth with low inflation is a doubly beneficial environment for corporates.

• Compared with the valuations reached by US equities, and with growth improving from a lower base, there is greater upside in some European stocks. As decades of cost-cutting start to drive profits, the dynamics in the Japanese equity market are also interesting.

• While turmoil in developing economies has recently shaken markets, confidence will return.