Key investment themes that emerged from the analysis indicate that both keeping it safe and daring to win would be advisable in the current economic environment.
Entitled ‘Today & Tomorrow’ the outlook was compiled by the firm’s three chief investment officers – Alan Higgins for the UK, Gary Dugan focused on the Asia and the Middle East and Norman Villamin covering Europe.
Investors can ‘keep it safe’ – and potentially enhance yields without too much risk – through European and UK investment-grade bonds, which offer protection against interest-rate uncertainty at a reasonable price. Additionally, some emerging-market corporate bonds in Asia may play an important role in portfolios for investors willing to accept the greater risks inherent in this asset class.
Investors are encouraged to ‘dare to win’ when considering low interest rates and should step up the risk ladder in order to achieve returns.
High-yield bonds are now closely correlated to equities, and absolute-return funds should be considered to diversify portfolios. Cash deposits will continue to lose money in real terms, after inflation, for savers.
Stock up on income
Other key investment themes included stocking up on income, looking for sectors that offer net dividend yields that are historically above average, and with room for dividend growth.
The ‘quest for growth’ theme highlights that investors need to drill down deeper to unearth growth potential, with Coutts recommending equities over bonds entering 2014, particularly equity shares in the luxury goods sector trade at a discount to many world equities.
Changing risks remains a key theme going into the New Year as political instability remains a threat to Europe’s fledgling recovery.
“Although global stock markets recovered in 2013 as investors’ optimism returned, we believe policymakers face a triple challenge of indebtedness, QE and changing demographics. As a result, we believe we are in for a sustained period of low growth and low interest rates,” Higgins said.
