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

18 October 2014

It’s always easier to point out mistakes with the benefit of hindsight but in this article we highlight some of the managers whose predictions for this year have been wrong, so far anyway.

By Alex Paget,

Senior Reporter, FE Trustnet

This year, certainly compared to 2013, has been a very tough time for investors as although the global economy has been on a generally upward trend, it has been defensive assets which have performed the best.

Earlier this week, we looked at some of the more contrarian calls made at the beginning of 2014 which have since come true.

In this article, we highlight some of the managers whose predictions, which were widely agreed with at the time, have not.

Again, like with the last article, it must be pointed out that 2014 is not over and who knows what will come to be over the next few months, so by January 2015 it could be a different story altogether.


“Expect 20 per cent returns from equities in 2014” – Trevor Greetham

 Equities had a stellar run in 2013 with the FTSE All Share gaining 20 per cent and the S&P 500 delivering 30 per cent.

The consensual view for 2014 was that, while returns may not be as strong as in 2013, stocks would have another good year.

ALT_TAG Trevor Greetham, director of asset allocation at Fidelity, went a step further and predicted that – because he felt the economy was in disinflationary recovery, which would mean monetary policy would remain loose – equities would deliver another 20 per cent return.

“Stocks were up 21 per cent last year, but I have been reading a lot of outlooks for 2014 and the majority of people seem to think returns will be a lot lower this year,” Greetham (pictured) told FE Trustnet in January.

“For me, in this environment the average annual returns should be 20 per cent. Just because we have had those sorts of returns last year it doesn’t mean we can’t see them again. That is why we are maximum overweight stocks.”

In reality, it has been a very different outcome; so far, anyway. Due to an initial sell-off in emerging markets, equities began to retreat in January and, while they recovered, returns were broadly flat over the spring and summer months.

Then, as investors will be all too aware, the UK equity market fell close to 10 per cent over the last month or so as headwinds such as geo-political tensions, the Ebola outbreak, concerns over the future of the eurozone and the imminent end of QE in the US plagued investors.

As a result, the FTSE All Share has lost 5.75 per cent year-to-date, according to FE Analytics.

Performance of index in 2014

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Source: FE Analytics

Greetham wasn’t alone in his bullish predictions, however. Star manager Richard Buxton, who believes we are in the foothills of a decade-long bull market in equities, told us that the FTSE could surpass 7,000 this year while Brewin Dolphin’s Guy Foster went further and said it could hit 7,400.

This could all happen, of course, as markets could rebound and maybe even enter a ‘Santa rally’ in the build-up to Christmas.

But, the FTSE stands 6,260 at the time of writing so it has long way to go.


“Small cap rally will continue” – Gervais Williams

Small-caps had been one of the major beneficiaries of the bull market as not only was the UK economy in recovery mode, but investors felt increasingly comfortable taking higher levels of risk.

ALT_TAG According to FE Analytics, the Numis Smaller Companies ex IT index returned 36.93 per cent and the average fund in the IMA UK Smaller Companies sector returned 37.18 per cent last year, with the likes of R&M UK Equity Smaller Companies and Unicorn UK Smaller Companies gaining close to 60 per cent.

Some questioned whether smaller companies would continue to perform as well in 2014, certainly relative to large-caps, following those strong gains.

However, Williams – who manages the now-closed CF Miton UK Multi Cap Income fund – told FE Trustnet in January that investors were making a mistake if they were to chop down their exposure.

When asked whether the rally would continue, Williams said: “Absolutely.”

“I was just chatting with someone in sales who has worked in small caps for a long time and we were talking about how there are a lot of people who have made money from smaller companies and have said 'thank you' and taken their profits and moved into something like gold.”

“That’s fine, there will always be traders. However, they are going to find it really difficult to get back in.”

Unfortunately for Williams, that hasn’t been the case so far this year. While small and mid-caps continued to perform well in the first few months of the year, investors began to take profits from high multiple growth stocks, such as smaller companies, in March and moved into the relative safety of FTSE 100 companies as macro risks mounted.

Their sensitivity to interest rate movements was given as a reason for the sell-off, but it seems most investors just wanted to lock in their profits from the year before.

They have also been affected by the recent correction, which means that they have lost close to 10 per cent in 2014.

Performance of sector and index in 2014

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Source: FE Analytics

That being said, most agree that valuations now look quite attractive in the smaller companies space and history suggests that small-caps beat their larger companies over the longer-term so maybe investors shouldn’t be giving up on them just yet.


“Avoid government bonds, buy high yield” – Ariel Bezalel

Last year’s spike in government bonds was seen by many as the start of a long and drawn out bear market in fixed income, with yields expected to rise due to economies strengthening, less stimulus from central banks and a hike in interest rates.ALT_TAG

FE Alpha Manager Ariel Bezalel, who runs the five crown-rated Jupiter Strategic Bond fund, agreed that prices of government bonds would continue to fall, but said in January that investors could afford to buy high yield credit for their fixed income exposure.

At the time, this was a quite consensual argument.

While gilts were seen to be a particularly poor asset class, high yield bonds were in vogue as not only had they already delivered good returns, they offered a decent level of income and are considered to be less-sensitive to interest rate movements.

Yields in certain areas of the market made many question whether they could really be classed as ‘high yield’ anymore – the yields dropped below 5 per cent in European high yield bonds earlier this year.

But many were happy to buy because default rates remained low, and are expected to continue to be, as so many companies have been able to refinance themselves cheaply.

That being said, the returns of gilts and high yield have differed widely this year.

Performance of sector and index in 2014


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Source: FE Analytics

According to FE Analytics, gilts have returned 9.38 per cent this year while high yield bonds have delivered a very small gain.

The reason for this is that scares over the lack of liquidity in the high yield bond market and its sensitivity to equities meant lower-rated credit struggled, while gilts have acted like a classic safe haven again in the face of uncertainty.

Ten-year gilts currently yield below 2 per cent, for instance, having started the year at close to 3 per cent.

However, Bezalel told FE Trustnet this week that he has changed his portfolio as new information has been presented to him.

He has put his fund into “capital preservation mode” and now has a much higher weighting to government bonds.

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