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Top managers share their take on 2024

21 December 2023

Four leading portfolio managers discuss their outlooks for the new year.

By Matteo Anelli,

Reporter, Trustnet

Every December, leading fund managers speak to Trustnet to reveal their main predictions about the following 12 months.

This year, we’ve spoken to four top managers – two optimistic and growth-focused and two that are known to be more cautious. This way, investors should be able to get a broader picture of what to expect in the near future.

 

Ruffer’s Macinnes: Splintering backdrop will give birth to an age of inflation volatility

Duncan MacInnes, manager of the Ruffer Investment Company, is on the more bearish side of the predictions. In October, he moved his portfolio to an even more defensive position to prepare for a recession and what he called “a new world order”.

“Globalisation has kept the cost of capital low until now, but that world is over,” he said. “The new world order is defined by great powers in strategic competition and a primacy of stakeholders over shareholders, which is distinctly less friendly to asset prices and multinational corporations.”

This “splintering backdrop” – one in which the US is engaged in a cold war against China, a hot war in Ukraine and against Hamas, and an energy war against OPEC – will give birth to “an age of inflation volatility”.

“In the next year, we will have higher economic growth volatility, higher inflation volatility, and therefore higher market volatility. In retrospect, unicorns and bitcoins were all collective delusions caused by easy money, and I can say that as a reformed Bitcoiner,” the manager said.

And we are already seeing this change take place: “These things are a process, not an event. Many banks failed in 2007 and 2008 before the market reached the bottom in March 2009. It seems unlikely to us that Silicon Valley Bank was the only dead fish”.

In this new regime he recommended investors to “think more flexibly” about asset allocation and portfolio construction techniques, be “more nimble and tactical” in trading portfolios and “more creative” in the assumptions they make around the correlations.

“Correlations are not static, they are regime dependent and as we've seen this year, they can change pretty quickly,” he  concluded.

 

M&G’s Woolnough: It’s starting to be difficult to find reasons not to own bonds

Years of ultra-low interest rates made it challenging for investors to be constructive on bonds, especially government bonds. But things have changed, according to Richard Woolnough, FE fundinfo Alpha Manager of the M&G Optimal Income fund.

“While in the past it was hard to find reasons to own bonds, now we think it is starting to be difficult to find reasons not to own them,” he said.

Falling inflation and the end of central banks’ hiking cycles would effectively put a ceiling on how far rates can go – which, together with historically elevated bond yields, has created “an attractive risk-reward opportunity for duration-bearing assets”.

Credit, on the other hand, is moving from being “relatively good value” back towards what the manager described as “fair value”, although “pockets of opportunities remain particularly for active, flexible funds”.

“There is also now a notable valuation gap between bonds and stocks, which we think means bonds are not only attractive in absolute terms, but also in relative terms, and finally can represent a valid alternative for investors,” he added.

“After more than 10 years of being short duration and predominantly long credit, we have now changed. As we enter 2024, the strategy is now long duration and broadly neutral on credit.

 

Blue Whale’s Yiu: Do not underestimate the AI revolution

Convinced of the expanding proliferation of artificial intelligence (AI), Alpha Manager Stephen Yiu holds Nvidia as the largest position within the Blue Whale Growth portfolio.

The stock, with its stellar performance in 2023, has contributed to the fund’s overall return of 30.2% over the year to date (17.5 percentage points above its average peer in the IA Global sector), but Yiu doesn’t think that outperformance has played out yet and sees more value coming from generative AI in the next 12 months.

“Where digital transformation was the story of the past decade, the AI revolution is where we see the majority of growth coming in 2024,” he said.

“We see the AI revolution as a long-term theme, the importance of which should not be underestimated. As global titans, such as Microsoft and Meta, embrace AI, the quality growth opportunities are incredibly exciting.”

 

Scottish Mortgage’s Burns: The trendlines that really matter are the deep changes in technology 

As deputy manager of Scottish Mortgage, Lawrence Burns said that “the trendlines that really matter are the deep underlying changes in technology” we are seeing and will continue going forward. In particular, the trends around renewable energy production and storage “cannot be ignored”.

“The price of lithium-ion batteries and solar energy has steadily been falling, and demand rising, and as renewable energy continues to get cheaper, we know the world will want more,” said the manager.

“Companies such as Northvolt, [a private company and Europe’s leading battery producer] and US battery recycler Redwood Materials will continue to offer the West a chance for geopolitical independence in an industry which is of crucial importance for the 21st century, but has so far been dominated by China.”

In the new year, we could also see computing power increase by 50% for the same price or even more – aided by artificial intelligence (AI).

“Computing power doubles every 24 months for the same price, which equates to more than a 60x increase within 14 years – that’s when it becomes industry and world-changing. It’s why companies that leverage digital technologies, like Amazon, keep getting stronger.”

“In the past two years, the share prices of many of these disruptive digital businesses have fallen, but the core underlying trends not only have not stopped, they are actually accelerating thanks to AI.”

 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.