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Where bulls and bears will roam: top tips on investing in 2013

We asked three leading multi-asset fund managers, Richard Peirson, Max King and Alec Letchfield, for their tips on investing in 2013. They were positive on equities but warned of overpriced core sovereign debt.

Richard Peirson: be bullish on equities

Citywire A-rated Richard Peirson, manager of the £400 million AXA Framlington Managed Balanced fund, said he would remain overweight in equities this year.

Peirson, whose portfolio is currently 40% in UK equities, cited stocks such as Debenhams, Lloyds (the ‘pure domestic bank’) and ITV as performers, as well as his recent purchases, house builders Barratt Homes and Persimmon.

‘Why do we have 40% in the UK? I always say the UK stock market has little to do with the UK economy,’ he said. ‘There are a few exceptions, but most of it is global...’

A big theme has been buying stocks with US earnings. Peirson started this theme in 2011 but is not tempted to take profit from it next year. ‘It’s in a three-to-five-year period of good performance on the back of an industrial renaissance,’ he said.

His patience has paid off: the fund returned 21.5% over five years to the end of November 2012, compared with the LCI UK Balanced & International Equity (50:20:30) benchmark, which gave 13.7% over the same period.

Peirson warned of a bubble in sovereign bonds. His fear of this is reflected in his 12% cash weighting; larger than his 8% in UK gilts. He said he did not expect a huge rise in inflation in the short term but was not sure how recent bouts of quantitative easing would affect the economy.

‘At the moment I’m running the bonds on the basis of damage limitation,’ he said. ‘I always say it’s like insuring your house: it if doesn’t burn down, don’t cancel your premium.’

Max King: avoid dinosaurs and seek safety in gold

Max King, manager of various multi-asset funds, including the £39 million Investec Managed Growth fund, said he had learnt a few lessons in 2012. His fund returned 3.8% over five years to the end of November 2012, compared with the FTSE All-Share/Equity Investment Instruments benchmark, which returned 9.9% over the same period.

‘Don’t try to trade the market, as that has lost people a lot of money,’ he said. ‘Buy quality companies and don’t be clever by trying to buy cheap stuff. The winners in this world tend to go on winning. Also, stay away from the dinosaurs that were good companies once upon a time: they are the stocks to avoid.’

Among those he classed as ‘dinosaurs’ were BP, Shell, Vodafone, GlaxoSmithKline and AstraZeneca, which he said were ‘not disasters, but persistent losers’.

King said bonds would face more of a struggle this year than in 2012 and he was looking to commodities and alternatives to hedge against that.

‘We are ever hopeful of seeing some movement in the gold price. We also like the platinum and palladium price,’ he said. ‘There might be a spike in oil, we like infrastructure funds in the long term and we are keen on private equity.’

King holds physical gold and gold mining equities, and said that both continued to be disappointing. While he has nudged up his equity weighting, he had chosen gold rather than cash as an insurance policy.

‘On fully invested funds we have pushed cash down as far as 1%, as we would rather hold gold,’ he said.

Alec Letchfield: move up the risk spectrum

Citywire A-rated chief investment officer Alec Letchfield at HSBC UK Wealth, said he was worried about the spreads on credit in 2013.

The spread between yields on credit and government bonds were very high in 2009/10, but they are falling now,’ he said. ‘It’s harder for them to show good returns and we are perhaps looking to go up the risk spectrum to high-yield debt and emerging market debt in local currency. In a low interest rate environment, people seek income.’

His main focus is his bullish stance on equities. By contrast, he described core nation government bonds as ‘horrendously expensive’.

'This year it’s a pretty similar story: valuations look very cheap for equities, the tail risks will diminish and the fiscal cliff will be resolved,’ he said. ‘Europe will still be volatile but will get better throughout the year, and we should see a little bit of earnings growth. So it all suggests that equities, which most people are still cautious on, should do well against this backdrop.’

The HSBC UK Focus fund, which he manages, returned 13.8% over five years to the end of November 2012, outperforming the FTSE All Share’s 12.4%.