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The managers who’ve got it right in 2014 – so far

14 October 2014

A number of industry experts were willing to go against the grain with their predictions for 2014 and so far, due to the recent sell-off, these individuals have all been proved correct.

By Alex Paget,

Senior Reporter, FE Trustnet

High starting valuations, tightening monetary policy in the US and UK and growing macroeconomic headwinds have meant that returns from risk assets have been far harder to come by in 2014 than in last year’s bull market.

Despite that, the consensual view was that although returns would be lower than the 20 per cent-plus gains of 2013, this year would be a good one for equities and that defensive assets would continue to underperform.

That hasn’t really been the case, has it? The FTSE All Share is down more than 3 per cent year-to-date – those losses have been compounded by a 7 per cent fall over the past two months – while 10-year gilts currently yield 2.18 per cent at the time of writing, having started the year at close to 3 per cent.

That being said, some people have been willing to give more contrarian calls and although there are still three months to go, here we highlight several of the slightly left-field predictions that have so far come true.


“Get out of cyclicals and into defensives” – Marcus Brookes

FE Alpha Manager Marcus Brookes, who co-runs the Schroder MM range with Robin McDonald, has been relatively bearish on markets for a while.

That hasn’t always been the case, however, as he and his team were one of first to make the decision in late 2011 to shift out of defensive equity funds, such as the Invesco Perpetual High Income fund, and into more “risk-on” portfolios such as Fidelity Special Situations to take advantage of the rally.

This call paid off, but at the start of this year Brookes told FE Trustnet that he had sold the Fidelity fund because FE Alpha Manager Alex Wright’s value-contrarian style meant it could be a victim of long-overdue market “shake-up”.

“I think there is a possibility [a] small-market shake up could well lie ahead and that is going to create victims and winners. What we are doing is shying away from, what we think, could be potential victims,” Brookes said of Fidelity Special Situations in April.

To replace the £2.8bn Fidelity fund Brookes bought the RWC Income Opportunities fund, which has a far greater emphasis on capital protection with its high weighting to mega-caps.

Performance of funds vs index in 2014


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Source: FE Analytics

According to FE Analytics, RWC Income Opportunities has ground out a small return in 2014, while the wider market has lost 3.73 per cent and Fidelity Special Situations has lost 7.06 per cent.

Brookes and McDonald have had to wait for some of their calls to pay off, however.

Due to their concerns over both bonds and equities, they have held a lot of cash within their funds of funds.

While this has helped them over the last month or so as markets have fallen, a recent FE Trustnet article showed that it had weighed on their performance.



“Underweight developed markets and overweight emerging” – Toby Ricketts

Emerging market equities had a torrid time of it in 2013. Slowing economic growth in China and the impact tighter monetary policy in the US would have on developing economies meant that the MSCI Emerging Markets index and the IMA Global Emerging Markets sector both lost more than 3.5 per cent while UK and US equities delivered strong gains.

Not many were willing to call when emerging markets were going to rebound as issues such as currency weakness and current account deficits plagued the sector.

ALT_TAG However, Margetts’ Toby Ricketts told FE Trustnet in December last year that he had been upping his exposure to emerging markets at the expense of UK mid and small-cap funds.

“Across the markets, it will be more difficult to add value. Riskier assets have performed really well recently, however I think the rally in the likes of small caps and cyclicals will definitely start to unwind,” Ricketts (pictured) said.

“I would expect that small and mid-caps will continue doing well during the first part of the year, but as the volatility from tapering comes through, that’s when large caps will outperform again.”

He went on to say why he thought emerging markets, which were trading at low valuations at the time, would outperform developed markets in 2014.

Performance of indices in 2014

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Source: FE Analytics

While Ricketts had to put up with continued underperformance from his emerging market funds in January, the graph above shows that his predictions were accurate.

The manager has slightly changed his tune on emerging markets more recently, however.

He thinks the rally over the summer wasn’t based on any fundamental changes, just an acknowledgment that it was a part of the market that was excessively cheap.

“The point is, it was an easy to decision to buy emerging markets in February and it isn’t now. The bargain has gone and though I still think they are good value, the overselling has reversed,” Ricketts said in August.



“Bonds will have a good year” – Paul Warner

Many suggested that 2013 signalled the end of a 30-year bull run in fixed income assets
, as Ben Bernanke’s speech in May about the future of QE in the US caused yields on government and corporate bonds to spike.

With economies in recovery mode and a further normalisation of rates expected, many thought yields would continue to rise this year.

Paul Warner, managing director at Minerva Fund Management and a member of the AFI panel, was still bearish on bonds over the medium term, but in January he told FE Trustnet that investors shouldn’t just avoid the asset class.

ALT_TAG “Interestingly enough, it seems that inflation isn’t going to be a big problem this year,” Warner (pictured) said.

“Because of that, it is quite possible that the gilt and treasury markets might have already priced in expectations over rising interest rates, which could now not happen for a lot longer than first anticipated.”

“Although I hate fixed interest [over the longer term], it is possible that bonds won’t perform as badly in 2014 as people have been expecting,” he added.

Performance of indices in 2014


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Source: FE Analytics

His prediction has certainly been right so far as inflation has fallen and bonds have gone from strength to strength.

This has meant that a number of managers – such as Stewart Cowley and Richard Woolnough – have underperformed this year as they went short duration and generally positioned their portfolios for higher yields.

Reasons that have been given for the surprising outperformance from gilts this year include growing geo-political risk in Eastern Europe and the Middle East, along with the belief that bonds were over sold at the back end of last year.

However, given that interest rates are expected to rise early next year and as gilt yields touch a 16-month low, it is hard to imagine that they will continue to rally much further from these levels.

But, then again, who knows? 

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