Key investment themes for 2014 – and top fund picks

16th December 2013

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Investors have endured their fair share of concerns over the past year – the collapse of the gold price in April, the end of the bond rally and of course the ubiquitous worry over when the US will start to pull the rug on its massive economic stimulus package.

But overall in the past 12 months equity markets have delivered, where in the UK, the FTSE 100 and wider FTSE All-Share are up by a respective 9% and 12% while the US S&P 500 index has soared by 25%.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown believes that active investing should remain a core strategy for investors next year. He says: 2013 has been a good year for investors. However, investors cannot rely on this strong performance being repeated in 2014. Following that rise many stock markets are no longer as good value as they were.

“In this climate active investing, picking the right companies, sectors and countries will help investors out-perform.”

Lowcock below identifies a number of themes likely to dominate financial markets in 2014.

Gold – gold bullion has fallen in value by 27% so far in 2013 leaving it on course to lose investors’ money for the first time in the past 14 years. Shares in gold mining companies (FTSE Gold Mines Index) have fallen 53%. Gold has become unpopular with investors and could remain out of favour in 2014 as investors switch from defensive assets into equities to take advantage of improving economic growth. Gold mining shares now trade below their book value, with a Price to Book ratio (p/b) of 0.93, the lowest since January 1980. There appears to be value here for a long-term investor, however, momentum remains negative and catching a falling knife requires some bravery.

Fund to consider: BlackRock Gold & General

Mergers and Acquisitions – M&A activity has been sluggish since the financial crisis but is set to increase in 2014. Companies have cut costs and build up the cash on their balance sheets – they now have money to spend and the improving economic outlook should give them confidence to do it.  Fund managers are reporting a pick-up in M&A activity and this could really help performance.

Fund to consider: M&G Recovery

Japan – 2014 could see further gains for Japanese shares. The Topix index has risen 25% so far in 2013 (to 31November), while company earnings have risen 17%.  Analysis by Hargreaves Lansdown shows Japanese shares continue to look good value with the Topix among the cheapest of the major stock markets. In 2014 the introduction of a Nippon ISA should encourage Japanese investors back into the stock market.

Fund to consider: JOHCM Japan

US Tapering QE – Tapering might start as soon as this week but its effects and the impact on economies, currencies and stock markets will be felt throughout 2014. It is difficult to predict the full effects and investors will watch the US closely for any signs of economic slowdown which could cause markets to overreact in the short term.  Tapering is a sign of an improving US economy so investors should look to add to their equity exposure by buying the dips.

Fund to consider: Legg Mason US Smaller Companies

**(All funds selected from Hargreaves Lansdown Wealth 150 list)

1 thought on “Key investment themes for 2014 – and top fund picks”

  1. Taylor says:

    Awesome! I enjoyed reading the post. It is very informative for the teenage investors. Every one should give it a read. primebullion.co.nz.

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