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
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.
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
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.
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
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.