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Bullish investors set to pounce on bond-like shares

2013 will be another volatile year in equity markets, but a winning one too, say global investors.

 
Bullish investors set to pounce on bond-like shares

Global shares, the more bond-like the better, are being heavily tipped by fund managers and investment houses to enjoy more gains in what is expected to be another volatile year in stock markets.

While the pessimists are still sounding the alarm over the big threats to global economies – particularly the threat of a US fiscal cliff and eurozone crisis – the optimists are shouting loudest, eyeing a winning 2013 for shares, or equities, in their crystal balls.

Major global investment houses and banks including BlackRock, Bank of America Merrill Lynch, Goldman Sachs and Deutsche Bank expect strong returns for equity investors, amid improving but still low global growth.

Their optimistic viewpoint, tempered partly by the uncertainty over the potential fiscal cliff, comes at the end of a winning year for share investors, with global equities up 16% as measured by the MSCI World index. ‘You had to try hard to lose a lot of money in 2012,’ said Ewan Cameron Watt, a senior investment strategist at BlackRock. His colleague Richard Urwin noted that in 2012 ‘the more an equity has looked like a bond, the better the equity has performed’.

Such dividend paying shares are expected be the favourite alternative to low-yielding G4 government bonds as central banks' monetary policy remains loose.

Cameron Watt said: 'It is not the best possible economic environment for equities, but frankly with the prices we've got, it doesn't need to be.'

Bank of America Merrill Lynch says yield-seeking investors will make a decisive rotation from these bonds to less expensive and higher yielding equities and investment grade corporate bonds. This rotation represents the first of three ‘r’s for BoA Merrill Lynch alongside Reflation (more quantitative easing) and Re-gearing (major companies borrow at low interest rates and buy weaker rivals).

Endurance test

The shift to equities in the furious search for yield won't be a smooth ride however. ‘Whilst real losses are likely from [cash and government bonds] equities are priced to give decent real returns for patient investors, who are prepared to endure the risk of near-term capital volatility,' says Andrew Bell, chief executive of the Witan Investment Trust .

Investec adds a caveat for investors piling into dividend paying companies to get their income. ‘Market indices around the world are dominated by companies that have seen better days. They look cheap and offer tempting dividend yields but often face serious strategic challenges.’

Investec favours smaller companies for returns next year. In 2012 this strategy would have paid off in the UK, with FTSE 250 companies (up 25% year to date) vastly outperforming their larger competitors on the blue chip index (up 11%).

More positive than 12 months ago

UK-based fund managers are in general more upbeat about markets than they were this time last year. According to a poll by the Association of Investment Companies, 87% of managers expect markets to rise next year, compared to 71% last year.

‘Risk assets will perform moderately well but with a disappointingly high level of volatility,’ Euan Munro, co-manager of the £19 billion Standard Life Inv Global Absolute Return Strategies fund, told Citywire.

A separate survey of global financial workers by the CFA Institute drew a similar conclusion: equities will outperform all other asset classes.

There remains plenty of reason for caution however, and the bears have not been subdued. Fund managers at Aberdeen Asset Management take a more cautious stance. ‘We still prefer to have a defensive bias within portfolios. Over the last 12 months that bias has moderated. We’ve seen selective opportunities in businesses with a bit more cyclicality in their earnings,’ says Jamie Cumming, manager of the Aberdeen Ethical World fund .

Anthony Cross, manager of the Liontrust Special Situations fund, reminds investors that 'it will be really tough over the next 12 months'. Even the most bullish investors cannot deny the lingering threat from the eurozone, even if they believe policy actions have put a full-blown crisis on ice.

European hopes

Only by drilling down into stock market sectors and individual companies, do the real differences between outlooks become apparent. The AIC survey shows a strong bias towards financial stocks, while equities in Europe and emerging markets are most widely tipped to outperform.

Major financial institutions including Deutsche Bank have also thrown their weight behind trampled-down European assets. ‘We are positive on the outlook for euro area equities based on the pick-up in global growth. We expect stronger global growth to support earnings, and a decline in euro area risks to support ratings,’ the bank states in its outlook for 2013.

Just make sure you avoid companies that make too high a proportion of their money from the hardest-hit parts of Europe or are too highly-regulated, says Cedric de Fonclare, who manages the European Special Situations Fund for Jupiter.

The Citywire AA rated fund manager says this includes utilities, telecoms companies and some banks. Conversely he is overweight sectors such as basic materials (Syngenta, the German agribusiness giant, is his second biggest holding) that are ‘much more international, less exposed to political risk and capital light businesses which gives them the opportunity to allocate capital to where they see the opportunities.’

Many investors say they are also backing the ‘survival of the fittest’ – the theory that strong companies will get stronger and gobble up smaller competitors – and ‘self-help’ companies in the UK. These are the firms whose management are taking drastic remedial action.

22 comments so far. Why not have your say?

Chris Clark

Dec 14, 2012 at 15:26

"Global shares, the more bond-like the better, are being heavily tipped by fund managers and investment houses to enjoy more gains"

Do I hear the sound of a herd starting off in motion..?

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Hmmmmm

Dec 14, 2012 at 15:33

Naturally, but is the time to be contrarian last month, now, in six months or in two years time?

I'll let you know in 2 years.

Hmmmm

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joe stalin

Dec 14, 2012 at 15:46

you would like to think that we may begin to see some growth and as such suggestions that monitary easing may come to an end and suggesions that interest rates will move higher. In that event bonds will be sold off and money will move back into equities and probably not by choice into the defensives as they will likely underperform

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Geoff Downs

Dec 14, 2012 at 16:29

The chances of England winning the world cup are higher than interest rates rising in the next few years.

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SKYSHIP

Dec 14, 2012 at 17:26

Plenty of good yields out there for those who know where to look.

Real Estate Credit Investments (RECP) with a current yield of 7.84% and a Gross Redemption Yield of 7.58% is perhaps the best and most secure. Available @ 102p

Another is the likely Gross Redemption Yield in liquidation of 11%+ from Acencia Debt Strategies (ACD). Available @ 85p versus the 101.7p NAV.

For people who don't understand what I'm talking about - go to the SHA thread on ADVFN & begin to learn from many people who know even more than I do...

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Tony Peterson

Dec 14, 2012 at 17:45

So Geoff, if England win the next world cup (which?) I'll give you £100, and, otherwise, if interest rates rise in the next few years, you'll give me £100?

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Geoff Downs

Dec 14, 2012 at 18:01

As you are a more skilled investor and reader of the markets then me, I will sadly have to reject your offer.

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stuart smith

Dec 14, 2012 at 20:42

‘You had to try hard to lose a lot of money in 2012,’

Not really - a portfolio of Shell, BP, Vodafone, AstraZeneca and Glaxo would have got you great dividends but lost you more on capital.

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stuart smith

Dec 14, 2012 at 20:43

... and add Tesco to that too!

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Hilary hames

Dec 14, 2012 at 22:31

SkySHIP what is the SHA thread? Not sure what I am looking for!

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banjofred

Dec 15, 2012 at 06:58

and Morrisons

and even Smith and Nephew

and the "where was my brain" buys of BOT.L and FOG.L

on the plus side, er........

er......

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SKYSHIP

Dec 15, 2012 at 07:53

Hilary, if not already signed up to ADVFN then now is the time for you to do so. It is by Head & Shoulders the UK's best private investor financial website. Of course the Bulletin Boards are also frequented by rude time-wasters; but they are also used by many serious investors - just read FREE CAPITAL by Guy Thomas and you will see what I mean.

Incidentally, you can sign in for free; though to more fully benefit from the site's services, especially streaming prices, take up a silver membership at c£120pa.

http://uk.advfn.com/cmn/fbb/thread.php3?id=22163045

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martin young

Dec 29, 2012 at 21:49

I would avoid ADVFN, do your own research

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SKYSHIP

Dec 30, 2012 at 18:10

Errhhh - sorry Martin, but do please tell:

# Where do you read company RNSs?

# Where do you find company Annual Reports and prospectuses?

# Where do you see streaming prices?

# Where do you find daily trades?

# Where do you read others' interpretations on events?

# Where do you research for ideas?

Seriously, I would like to know, as, being a successful investor with a 40yr record, I am always interested to find something new...

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joe stalin

Dec 31, 2012 at 15:48

well i would add dump my subscription to the FT to that.

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SKYSHIP

Jan 26, 2013 at 14:29

So, no reply from Martin Young then!

Hilary - hope you followed my advice of 14th/15th December

When you do go to ADVFN - also read the JDT, PE, SL & CP+ threads

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SKYSHIP

Jan 26, 2013 at 14:37

Hilary & Banjofred ..two secure plays offering acceptable double-digit per annum upside over the next 2.5yrs - both in voluntary liquidation:

# Acencia Debt Strategies "ACD" - a liquidating hedge fund - seems to offer a GRY of 12.8%pa to a 31/03/15 liquidation date. OK, they've had a good run since my earlier post (from 85p to 91.5p), but the likely portfolio upside has grown even more, so the annual GRY has actually increased...

# AXA Property Trust "APT" - a liquidating property company with 2/3rds of their portfolio in the out-performing German Real Estate market - buoyed by both institutional and hot private investor monies from the rest of the Eurozone. Sp of 36.5p versus a latest NAV of 58.55p Assuming a healthy discount down to 50p & liquidation by 30/06/15 provides a GRY of 13.9%pa.

These aren't great returns; but they are significant...and have been deliberately understated.

Link to the SL (Self-liquidating) thread on ADVFN:

http://uk.advfn.com/cmn/fbb/thread.php3?id=25535642

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Tony Peterson

Jan 26, 2013 at 17:12

stuart smith is being disingenuous.

You have not lost a penny on a share until you sell it at a loss.

With a portfolio which includes Astrazeneca, GSK, and Vodafone I have not lost a penny on any of these. Indeed, as well as enjoying the generous dividends referred to, I have been adding to my investments in each in the recent share price dips.

This thread is still going a month on. You may care to reassess those putative "losses" you allege, Stuart, if you check current share prices. I was happily buying Vod at about 155 when you posted, and AZN also with dividends from other profitable companies as they came in.

The volatility of equity prices is a potential boon to the serious investor. Buy cheap. Sell dear. The doomsters, nervous nellies and wimps always do it the other way around in the end.

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SKYSHIP

Jan 26, 2013 at 17:48

TONY

"You have not lost a penny on a share until you sell it at a loss."

Sorry, but that is self-delusion. What do you think Mark-to-Market is all about? It is to make companies face up to the reality of carrying unrealised book losses.

I am afraid you are the one being disingenuous in that regard.

I do hope however that your holdings listed above have moved into capital profit so that you have a win, win position. Personally I see no problem in averaging down; and it sounds as though you may have done so successfully. If so, well done. Result.

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banjofred

Jan 26, 2013 at 18:02

I recommend a Bloody Mary, its that time of day

and one of your 5 alive 5 sday

report this

SKYSHIP

Jan 26, 2013 at 18:10

What a good idea - closing down....

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Tony Peterson

Jan 26, 2013 at 18:58

SKYSHIP (do you have to shout)

You can save your patronising bullshit for those you are trying to flog necrophiliac investments to.

For the record, as you measure it, my current holding in GSK is worth £127,395 and is on paper up £55,911. My AZN holding is worth £113,624 and is up £30,816. Vod currently worth £101,994 and up £15,252. I'm out of BP, but with a realised profit of over £31,000. "Averaging down" - what planet is your skyship parked on?

I stand by what I said. You haven't made a loss until you sell at a loss. You are the one deluding yourself and you are trying to delude others.

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