Avoiding ‘bond bubble’ a common trend
San Francisco, CA -- (SBWIRE) -- 01/14/2013 -- With many using the new year to make career and life changes, smart investors are using the turn of the year to analyze their investment portfolios.
Most analysts and fund managers are of the mind that equities are the way to go for 2013. Jane Coffey, who heads the Royal London Asset Management, states that the equity market may yield a return of 10% within the year, "unless European or US politicians mess up their fiscal policies and the major economies slow sharply", which is a considerable caveat, admittedly. To put this in context the FTSE 100 alone went up by just 2.7% in 2012.
Coffey adds that, “The best strategy for investors remains buying on the dips and aiming to build a long-term position in high-quality companies with strong balance sheets, growing cash-flows and rising dividend yields."
Fund Manager of Schroders, Richard Buxton, is backing UK equities over others, stating that "I believe we are in the foothills of a new bull market." He stated that valuation, based on price-earnings ratio, mean the next 10 years should provide “positive real returns for investors, possibly double-digit per annum, despite the economic headwinds we face".
Equities are also an asset of choice of Chelsea Financial Services' Darius MacDermott.
He stated: “"There will be volatility but we should see positive returns and pretty much every market is attractively valued. I'd go for an equity income fund and reinvest the dividends. As most UK investors already have a UK equity income fund, diversifying into a global fund might be a good option. My fund tip is Newton Global Higher Income but you can't go far wrong with a core investment in Axa Framlington UK Select Opportunities or Schroder UK Alpha Plus."
Adrian Lowcock works for Hargreaves Lansdown, and picks five find managers to watch within the new year. He noted Sebastian Lyon of Troy Asset Management's Trojan fund; Adrian front, who is manager of Artemis Income; Jonathan Asante of First State Global Emerging Markets Leader; M&G Recovery's Tom McDobell; and finally Julian Fosh in tandem with Anthony Cross of Liontrust Special Situation.
There are but a few professionals that put corporate or government bonds at the top of their respective list of asset classes for 2013. Many are concerned about the “bond bubble” and warnings against the gilts of the class.
Global Chief Investment Officer of Fixed income Andrew Wells at Fidelity Worldwide Investment, says: "In developed markets, high-quality government bonds do indeed appear overvalued versus our fair value models. This could remain the case for some time."
MacDermott noted that fixed income experienced a “phenomenal rally” in the most recent two-year span, and believes that is not a sustainable future. "Gilts continue to worry me," he said. "They once offered risk-free returns, now they just offer return-free risks. Investment grade and high yield bonds are slightly better with pockets of value but stock-picking will be key."
Bank of America Merrill Lynch is also concerned about the gilts, saying that the government bond yields in the United States, United Kingdom, and Germany, should only be expected to rise at a modest pace. It belies this could mean returns of -3% to a positive 2% for the year.
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