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What to avoid in 2015, risk warnings and 10-fold growth: Our best stories of the week

19 December 2014

We take a look at some of our favourite stories of the week, including why one manager thinks investors in his asset class can make 10 times their money in the coming years.

By Gary Jackson,

News Editor, FE Trustnet

As soon as we started to think the ‘Santa rally’ was cancelled this year, the market starts to offer some hope that it might be delivered after all.

After plunging at the start of December, the FTSE 100 is up nearly 3 per cent this week. In the past 28 years, the FTSE has ended December down only four times with the last time this happening being 2002.

The last fortnight of the year is statistically the strongest two-week period of the whole year as fund managers tend to position their portfolios for the coming year. The index is still down 3.5 per cent since the start of the month, but many investors will be hoping a last minute rally will push it into the black.

We’ve picked out a few of our favourite stories of the week below. FE Trustnet hopes you all have a great weekend.
 

Where NOT to invest in 2015

Given the time of year, FE Trustnet has spent a lot of time looking at where investors should be putting their money in 2015 but in this article we quizzed the experts about what they will be avoiding next year.

After their surprisingly strong 2014 and in light of probable interest rate rises in the UK and US, government bonds were singled out by Ben Willis, head of research at Whitechurch, as a key underweight for 2015.

“I can see why a lot of people think they may do OK next year, but we think the downside risk is much greater than any potential upside these markets can give you,” he told us.

The article also explores why our panel of experts believes investors might want to steer clear of fixed income exchange-traded funds, US equities and gold over the coming year.
 

Elliott: Why bullish investors need to overhaul their portfolios

Keeping with this less-optimistic tone, deVere international investment strategist Tom Elliott warned that more volatility can be expected in risk assets because of growing political risk and regulatory changes.

“Investors who are sensitive to market volatility may need to increase their exposure to defensive sectors and stock markets, because stock market volatility is likely to increase in 2015,” he told us.

Performance of indices over 3yrs



Source: FE Analytics

Elliott says the UK is the country most likely to see an increase in political risk as it moves towards a general election and markets attempt to make sense of the growing popularity of UKIP and the Scottish National Party.

Well-known fund managers taking a cautious view on the markets include contrarian Alastair Mundy, who heads up the Investec UK Special Situations fund, and FE Alpha Manager Neil Woodford, who runs the CF Woodford Equity Income portfolio.



Seven investment themes that will dominate 2015 and beyond

We did write some optimistic articles last week – including a look at the seven big themes Bank of America Merrill Lynch (BofA ML) expects to create plenty of investment opportunities in 2015 and the years that follow. 

BofA ML analysts say the annualised return from global thematic investing, as measured by the progress of biotech, waste and cyber security stocks, is 32 per cent over the past three years versus a 15 per cent return from global equities.

“Theme investing should continue to outperform in the brave, new, post-QE world. Position for lower expected returns from financial markets by concentrating portfolios in assets related to our long-term themes,” they said.

The ‘financial repression’ caused by the unprecedented efforts of the world’s central banks to loosen policy over recent years is the first theme BofA ML thinks investors should adapt their portfolios to but take a look at the full article to discover the other six.


Why it’s been a “terrible year” for active fund management

Four Capital’s Mike Pinggera told us this week that 2014 has been “terrible” for active funds, as too many managers have hugged benchmarks.

Our research shows that just one-quarter of the 271 funds in the IMA UK All Companies sector have beaten the FTSE All Share this year, while a similar share in the IMA Global peer group outperformed the FTSE World. 

Performance of sector vs index over 2014

 

Source: FE Analytics

The IMA UK Equity Income sector fared better, with 60 per cent of funds there beating the All Share.

However, Pinggera adds that active management should have a better year in 2015, as issues such as the falling oil price and currency movements in emerging markets will create opportunities for truly active managers to exploit.



Star manager Taylor: You will make 10 times your money in Japan over five years

Chris Taylor, manager of the £465m Neptune Japan Opportunities fund, thinks Japanese equities could return 10 times over five to seven years, owing to his belief in the government’s efforts to kick-start the economy.

The FE Alpha Manager says the Japanese market has the potential to soar if prime minister Shinzo Abe’s reforms weaken the yen further, which will help unlock the potential of Japan’s highly profitable multi-national companies. 

However, because Abe’s strategy depends on weakening the currency Taylor says investors must hedge out the yen in order to benefit fully from the potential stellar gains.

“Going way back to August 1982, the world is up 28 times and Japan is only up three times. It will close this gap. If they get this right, it’s not a question of the market doubling after 18 months, you’ll make roughly 10 times your money in five to seven years but you must hedge otherwise it won’t happen,” the manager told us.

Performance of indices since Jan 1983



Source: FE Analytics
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