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Five important charts on wealth managers' investment thinking
on Jan 30, 2014 at 12:18
Our quarterly fund manager survey shows how disrectionaires are approaching asset allocation at the start of 2014.
‘Fundamentals mean equities are no longer cheap. Revaluation will require an improvement in profits, but from where will that come?’ Gary Reynolds of Courtiers asked succinctly.
At the headline level, the overwhelming majority believe better earnings and profits are deliverable, with 82.8% expecting profits to rise, versus just 3.5% anticipating a fall. This is a remarkable turnaround from the outlook going in to Q4, when 68.4% correctly predicted a dip in profits.
But below that, many warned that progress would be partial and further complicated by the steady withdrawal of liquidity support. ‘2014 has a lot riding on it in terms of expectations - earnings need to come through to warrant improving sentiment,’ said James Calder of City Asset Management.
The number of managers with a bullish outlook over the direction of global growth inverted over the quarter with the 79% predicting a fall becoming 82% predicting a rise. The number expecting little change was relatively unchanged at 17.2%, from 21% previously.
Questions remained about whether that growth would be strong enough to paper over fears about a China slowdown and the steady easing of Federal Reserve purchases.
‘The end of QE is looming,’ said Mark Slater of Slater Investments. ‘In the coming year we will all be forced to focus much more on what a world without QE might look like.’
Investment Quorum CIO Peter Lowman added: ‘It would appear that we are now on the road to a global economic recovery, whilst the US Federal Reserve Bank will begin their tapering programme very shortly, western central banks should remain accommodative over 2014, therefore, excluding any unforeseen geo-political shocks equity markets should continue to be user friendly to global investors.
‘Admittedly, we would hasten to add that the developed markets might out-perform those of the developing world for a further period.’
While the median view on inflation remained almost static quarter on quarter, the polarities switched in line with the changing view on global growth, with the 36.8% predicting a fall and none expecting a rise going into Q4, becoming 34.5% predicting increased inflation with 3.5% expecting a fall. One of the biggest questions of the year ahead would be ‘at what point to start buying Inflation protection,’ said Charles MacKinnon, chief investment officer at Thurleigh.
Surveyed ahead of the renewed outburst of emerging market jitters in late January, the sector remained more shunned than at any point in the history of the Wealth Manager outlook.
The number of managers overweight EM equities stood at 22.2%, down from 31.6% in the previous quarter. A plurality of managers preferred to hedge their bets however, with benchmark allocations standing at 48.1%, almost unchanged. The number risking an outright underweight rose from 21.1% to 29.6% over the three months.
Most said that they were monitoring valuations with interest and expected to see an entry point this year, but were not yet ready to jump in with both feet.
‘Eyes are firmly on the US yet global emerging markets should make more sense, but it will be investor herding that dictates the outcome,’ said Jon Beckett of Lloyds.
‘When to recommit to EM markets,’ was the biggest question facing investment managers over the next 12 months added Simon Walker of Quilter Cheviot.
Elsewhere, given the steady-as-she goes outlook it was unsurprising that asset allocation changes over the final quarter of 2013 were marginal, with little in the way of discernible trend.
Of the developed markets, the only geographical area to see any increase in positive conviction was Japan, with the number of managers over-weight the country rising from 57.9% to 63%.
Overweights within US, European and UK equity fell across the board, largely in favour of neutral allocations, although following a remarkable zero reported underweights in both UK and European equity in Q3 2013 bearishness crept back in, with 3.7% and 11.1% of managers beneath benchmark respectively.
‘We continue to be keen on Japanese equities despite the strong performance in 2013,’ said Richard Scott, senior fund manager at Hawksmoor. ‘There is considerable scope for earnings growth to exceed most forecasts, and valuations remain attractive.’