2014: the year of not living dangerously

Things are looking up for investors but caution is still the key word. Danielle Levy reports

Investors could be forgiven for looking ahead to 2014 with some confidence. The economy is on the up and the FTSE has enjoyed another year where returns have outstripped inflation. But will this continue in 2014? Leading fund managers say it can, but returns may be harder to come by. Picking cheap companies with an ability to grow earnings will become all the more important.

Dan Hanbury, a fund manager at River & Mercantile, says the hunt for undervalued stocks has become even harder but opportunities remain. "We are buying quality and income stocks, as well as being focused on undervalued structural growth companies or those that still have depressed margins and recovery potential," he says. "This is against a backdrop of very high and possibly unsustainable profit margins across global stock markets."

He cites FTSE 250 packaging company DS Smith as a stock that stands to benefit from recovery in the UK and Europe, with the majority of its sales coming from both.

Simon Brazier, head of UK equities at Threadneedle Investments, says the recovery still faces numerous obstacles: "There are still risks out there, so I want to back companies that can grow in a low growth environment."

Mr Brazier adds that a number of large companies offer the potential for defensive earnings, are attractively priced and often pay healthy dividends. He cites BP, offering investors a dividend yield of over 5 per cent, as one large cap to back for 2014. The unloved pharmaceutical sector also has the potential to positively surprise next year, he says.

But Carl Stick, manager of the Rathbone Income fund, has been buying more cyclical businesses. He names bookmaker William Hill as one to watch for 2014. Although the stock has been hit by concerns about betting tax and online competition, he has been buying on weakness and expects the share price can continue to recover. Leigh Himsworth, the fund manager at City Financial, says Scottish TV could do well during the run-up to the vote on Scottish independence. He also highlights Ubisense, which provides technology that helps to locate staff and tools in factories.

Peter Lowman, of Investment Quorum, highlights equities and commercial property as investment areas for next year. He says: "In Europe, we feel that further opportunities will arise. While we do have investment exposure to the larger caps, the Barings Europe Select fund, managed by Nick Williams, offers investors an alternative proposition."

Bill McQuaker, of Henderson Global Investors, suggests Japanese equities. With the driving force of Prime Minister Shinzo Abe's stimulus programme, dubbed Abenomics, he suggests the Morant Wright Japan fund as one to watch.

But investors in Japan could be in for a volatile ride if 2013 is anything to go by. The market fell 20 per cent in late May after US Federal Reserve chairman Ben Bernanke announced plans to end the quantitative easing programme, but has since recovered.

Gavin Haynes, managing director of Whitechurch Securities, suggests the safety of being paid a dividend while you wait for share-price rises could prove a good call over the coming year. Coupled with his bias towards fund managers who target companies with recovery potential, he suggests the Schroder Income fund. Mr Haynes says commercial property offers investors the option of capital appreciation and a steady income – not something to be sneered at when interest rates remain low. He highlights the Henderson UK Property fund, saying: "The fund invests directly in a portfolio of over 50 properties with an emphasis on quality to ensure they maintain a high level of tenancy and will also hold a weighting in cash for liquidity purposes. This fund provides a yield of 4.1 per cent, which is attractive."

For those seeking bond funds, Henderson's Mr McQuaker recommends buying fund managers that have the flexibility to invest across the market as opportunities arise. His top pick is the Old Mutual Strategic Bond fund, run by Stewart Cowley. Although performance has lagged over the past year, he expects Mr Cowley's long-term track record will come good in 2014.

As recovery seemingly gathers pace and we approach the new year, investors must tread carefully. Mr McQuaker's advice for 2014 is not to overestimate the returns that equities can offer, and forecasts a range of 5 per cent to 10 per cent next year.

But, like Mr Brazier, he warns that substantial question marks loom: "When you look at the world, there are still major issues to be dealt with. I worry, while there is a hope we might be back in a normal world, in China there is a big rebalancing story and Japan is trying to generate inflation for the first time in 20 years. Meanwhile, the European banking system is profoundly challenged and in the US wages have not grown for a generation."

Danielle Levy is news editor at Citywire.co.uk.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
News
i100
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Your picture is everything in the shallow world of online dating
i100
Life and Style
Attractive women on the Internet: not a myth
techOkCupid boasts about Facebook-style experiments on users
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    HR Business Partner - Banking Finance - Brentwood - £45K

    £45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

    PA / Team Secretary - Wimbledon

    £28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

    HR Business Partner (Maternity Cover 12 Months)

    £30000 - £34000 Per Annum 25 days holiday, Private healthcare: Clearwater Peop...

    Business Analyst - London - Banking - £400-£450

    £400 - £450 per day: Orgtel: Business Analyst - Credit Risk - Banking - London...

    Day In a Page

    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    Countries that don’t survey their tigers risk losing them altogether

    Countries that don’t survey their tigers risk losing them

    Jonathon Porritt sounds the alarm
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz
    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on