London – Coutts today launches its ‘2015 Investment Outlook: On And Off The Beaten Track’, highlighting ten investment themes for the year ahead, framed by articles on profiting from unconventional ideas and our approach to risk.
The 2015 Investment Outlook provides insight from Arne Hassel, Head of Investments at Coutts and his senior team: Alan Higgins, Chief Investment Officer for the UK; Norman Villamin, Chief Investment Officer for Europe, Terence Moll, Head of Asset Allocation and Mark McFarland, Asia-based Chief Economist.
Arne Hassel commented: “Though equity markets wobbled during the autumn, the underlying economic fundamentals look solid. We believe the gradual mending of the world economy will continue in 2015, and against this backdrop we highlight a number of investment opportunities – some off the beaten track and some admittedly closer to the consensus.”
The key themes include:
Collecting the ‘unconventionality premium’: some unconventional ideas that look foolish to the crowd can be highly profitable. It is important to have an investment process that can capture this ‘unconventionality premium.’ At times being unconventional may look foolish, but the more diversified ‘risk premiums’ we can collect, the better off our clients will be in the long run.
Risks for 2015 – not what you expect: the risks or disasters that move markets most are those that investors did not (and perhaps could not) expect. Looking at the World Economic Forum’s annual list of key global risks over the past nine years, we find it hard to discern any relationship between these risks and equity returns. Our approach is to be vigilant but not alarmist, and to use unforeseen disruptions as an opportunity to buy quality assets at good prices.
- The case for equities: We remain positive on equities, given favourable valuations compared to expensive “low-risk” investments and our positive view on global growth.
- Banks: how soon is now?: Before the global financial crisis, bank shares were rarely as cheap as they are now. European and Japanese banks in particular are offering good prospects for the year ahead.
- Fight the crowd on geopolitical risk: When it comes to geopolitics, it can pay to go against the crowd. We’ve studied periods of geopolitical crisis since 1939 – from the Second World War to the 9/11 terrorist attacks – and found that the median market fell 13% from the start of the crisis to the low, then recovered by 54% three years from the start of the crisis.
- Investing alongside the US shale revolution: For year’s investors have been scouring the globe for income, but there are still some hidden gems out there. Master Limited Partnerships (MLPs) are little-known, but we see them as an attractive source of high and rising income streams, gained through exposure to the growing US shale energy sector.
- UK Commercial Property – on firm foundations: UK property remains an attractive source of high and growing income, supported by a strong economy.
- Look to Asia for Quality income: Attractive yields on Asian corporate bonds should weather prices volatility in anticipation of rate rises in the year ahead.
- Emerging Market debt: Since the end of the credit crisis, the higher yields from emerging market bonds have typically offset the extra price volatility to provide better risk-adjusted total returns. We see this continuing.
- Long term benefits of investing in China: China was the focus of some negative attention late in 2014, amid wider global slowdown fears, but its equity markets remain attractively valued and should continue to benefit from structural improvements.
- Japan’s new focus on shareholder value: Japan has a new equity benchmark with a focus on shareholder value, which could set the standard for better returns.
- Embrace unconventionality alongside the ECB: Asset-backed securities were labelled toxic after the global financial crisis. But higher-quality issues have come through the crisis unscathed, with superior yields and near-zero defaults. We see an opportunity to embrace this unloved asset class alongside the ECB.