F&C multi-managers Gary Potter and Rob Burdett give their predictions on what's hot and what's not in the investment space this year, based on their mantra that the only thing that determines how successful an investor you are is the price you pay for an asset.
"I'm extremely bullish on the shale gas revolution but have trimmed my US asset allocation over the last week," said Potter. "I'm relatively optimistic on the dollar - its cheap against the euro."
"People are writing off commodities but I'll lay a pound to a penny that commodities won't have such a bad year this year," said Potter. "Some valuations are coming back to decent levels."
"The idea that you put all your money into the Asian part of the growing world is wrong. If you had more in emerging markets last year you did badly, whereas if you had more in the developed world you did rather better," said Potter.
He added that he was underweight Asia and emerging markets last year but that he is now starting to allocate a bit on the margins to these areas. "Some of the cheapest markets are in Asia," he said.
"We are favouring China at the moment," added Burdett.
4. Emerging markets
"We're underweight emerging markets but I think 2014 will be a transition year for the sector - but with huge variations," said Potter. "QE withdrawal in the US will go on and effect emerging markets to a point but it and Asia will continue to grow."
"Dividends continue to be a highlight and we expect that to continue," said Burdett.
6. Small cap
"Small caps produced extraordinary returns last year on an average rating to the rest of the market, but they need earnings forecasts to be met," said Burdett.
He said he is staying with small caps and he expects retail investors to follow suit.
Though he warned that while "it's not time to leave the party, it is time to move towards the door".
"Europe is very very weak, with weak margins, but shares have appreciated," said Burdett. "It is teetering on a tight rope."
"European shares are trading at a discount but probably for good reason," added Potter. "European businesses are interesting - but Europe as a block seems to want to trip itself up. It's mired in politics."
"Japan we're still quite positive on," said Potter. "It's been asleep for the last six months but I reckon this is the best chance Japan has had in 20 years to sort itself out."
"We expect gold to have a better year this year but it won't feature in our portfolio," said Potter.
"Bonds might be a more interesting risk-return this year with inflation falling," said Burdett.
"There's a massive swing going on in an illiquid asset class. We're watching that carefully," said Burdett. "It's going to be an intriguing year for property."
12. Alternatives/absolute return
"We like the absolute return sector," said Burdett, adding that last year the targeted absolute return sector returned about 6.7%. "We've been gradually increasing our exposure to it."
13. Active vs. passive
"We're starting to see active managers really adding value again, they've showed the passive sector their heels," said Potter.
On the industry
"2014 will see more fund consolidation," said Potter. "We would expect further fund closures from both those companies who have small funds and want to protect what they have and larger funds who don't want anymore cash."
And what about the impact of the Retail Distribution Review (RDR)?
"The industry has generally come through the RDR pretty well," said Potter. "I've picked up a real positive vibe from advisers at the second half of last year as they focused on their investment work. Rising markets helped IFAs transition through the RDR."
"I'd like to think the quality of IFAs has improved among those left."
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From 6 April 2019