2014: the year of not living dangerously
Things are looking up for investors but caution is still the key word. Danielle Levy reports
Saturday 28 December 2013
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.
- 1 Fifty Shades of Grey movie trailer released: First look at Jamie Dornan as Christian Grey
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 50 books for students to read this summer: From Ernest Hemingway to Gillian Flynn
- 4 Students offered grants if they tweet pro-Israeli propaganda
- 5 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...
competitive: Progressive Recruitment: This really is a fantastic chance to joi...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar