Simon Read: Hotspots for 2015 - where to invest

Fund managers have been predicting where the smart money will be going in the coming year

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Last week fund managers told us they reckoned the Footsie would finally top 7,000 in 2015. But which areas should investors be looking towards to benefit from the best gains in the next 12 months?

Andy Parsons, head of investment research at The Share Centre, reckons the healthcare sector still has plenty to offer investors.

“Health care is a theme that has delivered positive returns for investors in recent years and 2015 will be no different,” he says. “The advances in medical and healthcare technology will continue at a rapid pace due to ageing populations, obesity and the demand and rising wealth of the emerging economies.

“Business models are likely to become more focused on specialist niche areas either directly or through partnerships and acquisitions. Revolutionary developments within immunodiagnostics are aiding drug development and treatments that harness the body’s own immune system. These developments will undoubtedly become the norm.”

Two funds that have performed well in the sector are the AXA Framlington Healthcare fund and Polar Capital Healthcare fund, he reports.

One sector commonly highlighted by experts at the moment is commercial property. “Money pouring into the sector is an indicator it may have another good 12 months, but yields have fallen quite a bit in the last few months as a consequence,” says Darius McDermott of Chelsea Financial Services. “Sentiment is good and outside of London there is still some value.”

That view is echoed by Duncan Owen, head of real estate at Schroders. “While rental growth outside London is patchier, some regional markets are definitely coming out of hibernation,” he says.

“Given a reasonably high yield and a further rental growth as the economy improves, we expect that next year will see another solid performance from UK commercial real estate.”

Other experts focus on regions. Brian Dennehy of favours India. “A year ago I pondered whether India’s stock market – at that time hitting highs – was running out of steam. The answer was then, and is still, no.”

 He says if we look far into the future then it’s possible that India would be the third largest economy behind China and the US by 2030. “The foundations for this leap could be laid in 2015,” he says.

Mr McDermott is also positive on India. “It has had a strong year in terms of stock market returns infused by a Modi victory – there is still more to go if they get the reforms right,” he says.

Meanwhile Andrew Swan, manager of the BlackRock Asian Growth Leaders fund, expects earnings growth of more than 20 per cent from companies in India over the next few years.

What about elsewhere around the world?

Mr McDermott is wary of US potential. “The comeback will continue if US firms do well,” he says. “Currently the US is the only region to boast earnings growth above 2008 levels, while Europe, Japan and emerging markets continue to lag behind their pre-crisis growth. Yet my fear is that the US has been existing in a stimulus-pumped world. So far there has been no panic, but we may again see October-like falls if the market gets jittery about growth.”

Tom Stevenson of Fidelity is more upbeat. “There are lots of good reasons to remain positive about America despite high valuations,” he says. “These include falling deficits, a recovering housing market, rising dollar, shale oil and gas and exposure to sectors that are leading the current bull market.”

Prospects for UK funds? The general election will be the big news. “The election will dominate the first half of the year,” says Mr Stevenson. “In fact I suspect it could be a game of two halves in 2015.”

Mr McDermott is relatively bleak about UK prospects. “We are not out of the water yet,” he warns. “Deflation is looming, as is eurozone contagion.”

He goes on to point out: “In the third quarter of 2014 there were 69 profit warnings issued by UK companies, compared with just 56 in the third quarter of 2013.”

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