What the Fund Managers Say
In this section we look at the House View of one of the Global Fund Managers operating in Ireland
Government bonds
US Treasuries
NEUTRAL
The slow withdrawal of QE into 2014 allows bond yields to rise, although muted inflation pressures and housing market risks will limit the sell-off.
European Bonds
NEUTRAL
While ongoing fiscal and political problems overshadow the region, the ECB is still required to provide support for peripheral borrowers. Political pressures require careful monitoring.
UK Gilts
LIGHT
Although the weak economic recovery and continued fiscal tightening provide support for the gilt market, valuations are expensive. Inflation risks are perceived to be diminishing, despite worries over QE.
Japanese Bonds
NEUTRAL
Although the Bank of Japan is extending its bond-buying programme, yields are very low and the inflation outlook is deteriorating as the government aims for reflation.
Global Inflation-Linked Debt
NEUTRAL
Valuations in individual countries warrant careful examination; the asset class is underpinned by investor worries about future inflation triggered by easy monetary policies.
Global Emerging Market Debt
HEAVY/NEUTRAL
Dollar-denominated bonds are Heavy as spreads are supportive, while local currency bonds are Neutral as careful examination is required of individual currency and spread factors.
Corporate bonds
Investment Grade Debt
NEUTRAL
Attractions such as positive corporate cashflows are increasingly priced in, while upward pressures from government bond markets will periodically affect total returns.
High Yield Debt
NEUTRAL
Although spreads have come in moderately, the outlook for bond defaults remains supportive. Yields are still relatively attractive although the market is more vulnerable to any sizeable asset class rotation.
Equities
US Equities
HEAVY
The underlying fundamentals in terms of consumer spending, housing and business confidence are slowly improving, although there will be a continued headwind from fiscal tightening.
European Equities
LIGHT
Valuations and corporate competitiveness are better but fiscal programmes remain a serious constraint while the ECB has not managed to improve credit availability in many sectors.
Japanese Equities
HEAVY
The government is pushing ahead with major monetary and fiscal policy changes. Corporate earnings should particularly benefit from a more competitive currency.
UK Equities
NEUTRAL
Companies face tough export markets but cashflow is positive and being put to work. A measure of confidence is seen in rising private sector job creation.
Developed Asian Equities
LIGHT
Slower commodity demand from key economies such as China still affects the wider region; currency strength has hampered economic rebalancing in some countries.
Emerging Market Equities
NEUTRAL
Performance is divergent; while some markets benefit from upgrades to sovereign debt ratings, many others face growing inflationary pressures, credit concerns and valuation issues.
Real estate
UK
HEAVY
The weak growth environment is expected to impact prices in the near term but yields remain attractive compared to other assets, suggesting returns above cash over a three-year holding period.
European
NEUTRAL
The market remains polarised with Northern European centres and good quality assets expected to be relatively robust, offsetting weakness in much of Southern Europe.
North American
HEAVY
We see the best prospects in under-developed industrial locations in Canada and the cyclical US office markets where future supply is at 30-year lows.
Asia Pacific
NEUTRAL
Excess supply in several key markets, e.g. China, will hold back growth, but offices in some of the Australian markets, for example, remain supported by a good demand/supply balance.
Other assets
Foreign Exchange
Very Heavy US Dollar, Neutral Sterling, Light Euro and Light Yen
The US dollar will benefit from the slow tightening of monetary policy, while a weaker euro and yen will eventually support their economies.
Global Commodities
NEUTRAL
Different drivers, such as a rise in the US dollar, Chinese demand, Middle East tensions and climatic conditions, influence the outlook for different commodities.
Cash
NEUTRAL
Central banks have pledged to keep interest rates lower for longer.
Key Issues
Within our funds, we are slowly adding to our equity positions, as we do not consider that policy tightening will derail the world economy. While the US authorities have indicated that quantitative easing (QE) will be withdrawn, this will only occur if the US economy is strong enough. Conversely, the Japanese authorities have begun a major QE programme aimed at halting the lengthy period of deflation. The situation in Europe appears more manageable, helped by support from the ECB, while the Chinese authorities clearly want a soft landing for the economy. However, financial markets are increasingly vulnerable to any major central bank decisions, after a period of very easy policy.
We remain positive on the ability of companies to generate profits, as the subdued economic backdrop in many developed nations is more than offset by continued expansion in many emerging economies. Stock selection is key as top-line sales growth, increases in wages and raw material costs, the impact of currency appreciation, and the ability to borrow vary considerably from company to company. Overall, a recovery towards positive earnings growth into 2013-14 would be very supportive.
Given the current environment, we continue to favour sustainable income yield from sources such as high-yielding corporate bonds, commercial real estate and equity income, although valuations are becoming less supportive for selective bonds and equities. We do not favour low-yielding assets, such as many government bonds and cash, especially in an environment where there are longer-term inflation risks.
This outlook of potential investment market developments in 2013 (and beyond) does not constitute an offer and should not be taken as a recommendation. This is only the view and outlook of one of the Fund Managers operating in Ireland.
Contact Your Local Independent Financial Adviser
Lucas Financial Consulting Ltd is based in Carrickmacross Co Monaghan. As we straddle four counties – Louth, Monaghan, Cavan and Meath we are ideally placed to become your new Local Independent Financial Adviser.
| Warning: These funds may be affected by changes in currency exchange rates. |
| Warning: Past performance is not a reliable guide to future performance. |
| Warning: The value of your investment may go down as well as up. |
| Warning: If you invest in these funds you may lose some or all the money you invest. |
| Warning: A deferral period may apply to withdrawals and/or switches from certain funds. Please refer to your product documentation for further details. |