Not that I would call myself a sophisticated investor but, if I go by the 97.4% (an estimate) of 2014 outlook pieces clogging up my inbox, now must be a great time to invest in equities as our economic recovery goes into overdrive.
I don’t wish to belittle the considerable investment talent of the wealth manager community, but as one high-profile money manager made clear to me recently, making money from risk assets (in developed markets at least) has been a relatively straightforward task over the past few years. So, judging by consensus, are we to infer that’s it going to get even easier?
A one-trick pony
In giving an outlook for his model portfolio service, Charles Hepworth, investment director at GAM, suggests asset allocation is currently a “one-trick pony” in terms of equities offering a far superior risk/return to fixed interest. He speaks of 2014 being defined by an increase in capital expenditure and M&A activity, while ‘taper tantrums’ appear to have subsided for now.
However, he admits to feeling uneasy how “every bear has turned bullish, even Roubini”.
Of course, there are still a fair few contrarians out there. Take Jeremy Lang, manager of Ardevora’s UK Equity and UK Income funds, who talks up the behavioural finance aspect of investor attitudes and who says he would actually be quite worried if M&A significantly picked up.
While not necessarily bearish, he sees any UK ‘recovery’ being led by the consumer discretionary stocks which have really struggled since the credit crisis.
“Most people’s judgement remains coloured by the 2008 crisis, which is a very powerful long-term anchor that allows a wall of worry to permeate in markets,” he says.
Surprises and disappointments
“If we look back at 2013, it was the first year in a while where we saw a big divergence of performance in markets – there were plenty of surprises, but there were also plenty of disappointments, not necessarily driven by macro risk-on/risk-off events”.
The suggestion is that this divergence could become even greater, particularly within headline sectors in the FTSE, such as consumer, tech or telecoms.
There’s a certain maverick appeal in the ‘return of the stock picker’, but that’s a big a trend as any to watch for this year – where real alpha-generating talent is rewarded.
“The consensus seems to be to back the UK economy, and that everything is brilliant and we are back to making lots of money, but well actually you have made lots of money if you invested five years ago when everyone was telling you not to,” comments Hargreaves Lansdown’s head of research Mark Dampier.
“The forecasters are often wrong, so picking the right managers and sticking with them is vital.”
That’s where the really talented wealth managers – not I – show their true value.
