By ADRIAN LOWCOCK 06/01/2012
Four leading fund managers share their view on how markets will fare in 2012.
Mark Burgess, Chief Investment Officer, Threadneedle:
“Despite the ongoing Eurozone crisis and the lacklustre economic outlook in the developed world, we remain overweight in equities. Company balance sheets are strong, many businesses are returning cash to shareholders via healthy dividends or share buybacks, and valuations are very attractive on a range of measures relative to history and to most other assets.
The current uncertainties make it hard to predict exactly when this value will be unlocked, but we remain confident that equities offer the best return potential over the medium term.”
Jim Leaviss, Fund Manager & Head of Retail Fixed Interest, M&G:
“We’re experiencing Central Bank “Regime Change”. They’d like to care about inflation, but huge societal problems and sluggish growth will result if boosting growth and getting unemployment down aren’t prioritised. As a result, rates will be kept below inflation rates for the foreseeable future. The Chinese aren’t going to be happy, although financial repression (making banks hold government bonds for example) and Quantitative Easing should support bond valuations.
Given this Regime Change, inflation linked bonds look like cheap insurance. In the UK the breakeven inflation rate between 5 year gilts and 5 year index-linked gilts is about 1% on a CPI basis. Given CPI is currently around 5%, the market is pricing in significant disinflation. Possible of course, but in a world of money printing, and with utility bill hikes and higher tuition fees still to come through, we doubt we’ll see negative CPI inflation.
We also think that at some point the Bank of England will have to buy index linked gilts as part of the QE programme (it’s running out of nominal gilts to buy, and MPC member Martin Weale has already raised the prospect of index linked purchases).
Credit looks attractively priced, already discounting a recession. We even like high yield bonds, where spreads are pricing in default rates of 50% over the next 5 years – given high yield companies have termed out their borrowing to avoid refinancing risk in the next couple of years, we foresee very low default rates in the near term.”
| Fund |
Initial charge |
Fund Manager |
Bestinvest rating |
| M&G Optimal Income |
0.00% |
Richard Woolnough |
5 stars |
Richard Buxton, Head of UK Equities, Schroders:
“Although investors hope that 2012 sees the fading of such dominant macro influences in favour of stockpicking, it is likely only to be some lessening of the macro uncertainties that will provide the initial catalyst for greater dispersion of returns within the market.
As the Eurozone sovereign debt crisis has deepened, the likely outcomes have become increasingly binary, hence the reluctance of investors to prejudge the outcome. So subdued has investor sentiment become that any sense that the slow motion and self-fulfilling run on confidence in European banks and sovereign states is arrested will provoke an extreme positive reaction in markets.
The biggest driver of returns this year is likely to be a positive uplift in risk assets as and when the acceleration in the Eurozone debt crisis is arrested. We do not expect a severe contraction in UK economic activity – but more of the same: growth effectively flat. From today’s valuations the next ten years should provide double-digit real returns, despite the economic headwinds we face.”
Allan Lui, Fund Manager – South East Asia, Fidelity:
“Economic growth in South East Asia is expected to moderate as demand from Europe and the US slows down and domestic economic activity falls. That said, the broad consensus is that the region would still grow by 7.3%* in 2011 and this is very attractive given the mediocre growth rate expected in the developed world.
With inflation coming down, most countries including China have started to loosen monetary policy. This should be viewed positively by investors going into 2012. I am seeing that despite the turmoil in the markets corporate balance sheets remain healthy, leverage is low and cash flows are strong. Valuations have come down to very attractive levels. I think this is a good opportunity to buy into better quality businesses and growth stocks with a longer term perspective.”
* Source: Asia Pacific Consensus Forecasts, Consensus Economics Inc, November 2011
You may also be interested in...
The value of your investment and the income derived from it can go down as well as up and you can get back less than you invested. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.