Two-thirds of investment trust managers expect global stock markets to rise next year. We explain where they are spotting value opportunities.
Emerging markets, the UK and the US will be the areas best placed to reward investors next year, according to investment trust managers polled by the Association of Investment Companies (AIC).
The AIC reported that 24% of investors surveyed were most positive on emerging markets, while 19% favoured the UK and 14% the US as investment bright spots for 2021.
On a five-year view, investment trust managers named the same markets but also Asia Pacific excluding Japan, which they saw as a compelling long-term opportunity.
“Over the coming years, we expect further significant positive economic development particularly in Asia and Latin America, as well as Africa,” says Carlos von Hardenberg, manager of the Mobius Investment Trust (LSE:MMIT) , one of interactive investor’s Super 60 choices.
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He adds: “We believe that a rotation back into emerging markets will lead to a normalisation of the large discount they are trading at today, and solid corporate earnings will be accompanied by improved macroeconomic tailwinds.”
In terms of equity market sectors, healthcare equipment and services was the space most hotly tipped to outperform next year, while the beleaguered travel and leisure sector is expected to bounce back strongly over the next five years after a disastrous 2020.
Reasons to be cheerful
The diminishing threat of Covid-19 as vaccines are rolled out globally is the biggest reason for optimism among fund managers next year. Technological innovation driving economic growth, and a style rotation from growth to value are the next two biggest reason investors cited to be cheerful. However, the greatest threat to portfolios is rising interest rates, almost a fifth of managers said, while high equity valuations are also a concern.
“The future looks very positive, with revolutions in information technology and medical science transforming lives for the better,” says Andrew Bell, chief executive officer of Witan (LSE:WTAN). “Asian consumption, technology and biotechnology remain key long-term themes. Near-term, banks and the travel and leisure sectors are likely to bounce strongly as investors make a rational analysis of their prospects rather than extrapolating the awful short-term trends from 2020.”
Richard Staveley, fund manager of Gresham House Strategic (LSE:GHS), agrees that some of the losers of 2020 may emerge as winners in 2021. He notes: “The rejection of UK equities and value shares in favour of US equities and growth shares, which has dominated investor behaviour in 2020, is likely to recede in 2021.
“Disparity in popularity will remain, but vaccine developments should enable an ongoing reduction in extreme market positioning despite a likely resurgence in Brexit-related headlines, which are probably already priced in.”
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Stock market predictions
Investment company managers were also bullish on the prospects for global stock markets, with 67% expecting they will rise in 2021, and only 10% predicting a fall. Nearly two-fifths of managers forecast that the FTSE 100 will close between 6,500 and 7,000 next year. Around 19% tipped it to close between 7,500-8,000, and 14% said between 7,000-7,500 points was more realistic.
Looking forward, investors must remember that nothing is certain, as 2020 has reminded us. “The one reliable prediction is that we should expect the unexpected,” says Sam Morse, portfolio manager of Fidelity European Trust (LSE:FEV).
“When asked this question in 2019, how many portfolio managers predicted a global pandemic? Having said that, the most likely ‘surprise’ is that earnings don’t recover to the extent that analysts are predicting, leading to disappointing stock performance. We are also keeping an eye on the US, where we are wary of slowing growth.”
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