With that in mind, three of Jupiter’s leading managers – Ariel Bezalel, John Chatfeild-Roberts and Cedric de Fonclare – tell FE Trustnet what they expect from their respective asset classes over the course of the year.
All three hold FE Alpha Manager status and have built up a lot of experience of running funds within the IA universe.
Ariel Bezalel: “Interest rates unlikely to rise this year”
Bezalel, whose five crown-rated Jupiter Strategic Bond fund has been a top decile performer since its launch in June 2008, admits that there are a number of risks facing his asset class going into this year.
Performance of fund vs sector and benchmark since June 2008
Source: FE Analytics
However, while a number of experts have warned that bond prices will fall this year as a result of higher interest rates in the US and UK, Bezalel (pictured) is not convinced monetary policy will tighten any further in 2015 and is therefore concerned the current strength of the dollar is giving off the wrong signal.
“On the one hand, a stronger dollar means cheaper imports for the US and could end up doing the heavy lifting for the Fed in terms of policy tightening and broadly speaking should be good for the US consumer and corporate sector,” he said.
“However, an associated fall in oil prices poses a threat to the shale-oil industry which has made a large contribution to US growth in recent years. Of most concern, however, is that the rising dollar might precipitate an unwinding of the carry trade.”
“This could exacerbate weakness in the developing world and add to the headwinds already faced by China. This could be a 2015 event.”
The FE Alpha Manager also says interest rates are unlikely to rise in the UK either. He says that as eurozone growth will remain anaemic and as the general election takes place in May, the UK economy may slow.
“We are concerned about policy risk as we head into an election year,” he said.
“Both major UK political parties are making plans to balance the budget in the next parliament – although following different paths – at a time when the Bank of England appears to be considering a pull back from its expansionary policies.”
“This could be a double whammy for the private sector and may force [Bank governor] Mark Carney to think again about a rate rise next year. As a result, sterling could be in for a rough ride, which is of the reasons why we retain exposure to the US dollar.”
In terms of areas he is positive on, Bezalel has a “material” position in European corporate credit as he believes the ECB will further ramp up its stimulus programme which will force yields down further.
John Chatfeild-Roberts: “Equities are an investor’s best bet”
John Chatfeild-Roberts, who heads up the popular Jupiter Merlin range, has a slightly different view to Bezalel as he anticipates the UK and US economies to continue to strengthen and therefore says interest rates might start going up.
As a result of that, he says investors should stick with equities over bonds.
“If the US and UK economies continue to grow, we would expect to see interest rates begin to normalise in 2015 and beyond, though this is likely to be a very gradual process,” Chatfeild-Roberts (pictured) said.
“Given the factors likely to affect markets, equities are currently our asset class of choice for the patient long-term investor.”
He says that, with interest rate hikes in the US on the cards, a stronger dollar will open up opportunities, but also create risks, in other regional markets.
“We would expect the recent strengthening of the dollar to continue, especially if growth elsewhere in the world remains relatively muted and investors believe there could be interest rate rises in the US,” he said.
“This is likely to have an impact on emerging markets, and could be positive for exporters in Europe and Japan as their currencies weaken relative to the dollar.”
“China may now have the largest economy in the world but growth there is currently slowing and its composition is changing as the country seeks to rebalance towards domestic consumption and away from a reliance on exports.”
Chatfeild-Roberts has managed funds of funds since the late 1990s. According to FE Analytics, he has returned 118.46 per cent over 10 years, beating his peer group composite by close to 40 percentage points in the process.
Performance of manager vs peer group composite over 10yrs
Source: FE Analytics
Along with FE Alpha Managers Peter Lawery and Algy Smith-Maxwell, Chatfeild-Roberts runs more than £9bn across the Jupiter Merlin range.
Cedric de Fonclare: “Europe should bounce back this year”
European equities had a tough 2014 as concerns about falling inflation and weak economic growth weighed on markets.
However, Cedric de Fonclare – whose £900m Jupiter European Special Situations fund has comfortably outperformed both its sector and benchmark since he took charge nearly 10 years ago – expects the ECB to step in and provide even more stimulus to stave of deflation and drive growth which will, in turn, boost the market.
Performance of fund vs sector and index since July 2005
Source: FE Analytics
“In an environment of low economic growth in Europe, we are seeing increased speculation that quantitative easing will be employed in the fight against deflation and euro strength,” de Fonclare (pictured) said.
“Nobody knows how much stimulus there will be, precisely when the central bank will act, or even if it will have the desired effect on the European economy. What does seem clear to us, however, is that it should be supportive for equity markets and should help maintain downward pressure on the euro.”
“With this in mind, we continue to weight our portfolio toward companies with international sales and diversified end-markets.”
However, while the manager is undoubtedly positive on European equities, he is not getting carried away as he says there are still risks on the horizon.
"Following the rerating that took place in 2013, share prices have in 2014 depended mostly on earnings growth and we believe this trend is likely to continue,” he said.
“We continue to seek companies with pricing power and the ability to outgrow the underlying economy. We do, however, remain mindful of valuations, deploying our cash gradually and only where we can identify attractive entry points.”
