ISA ideas: Five investment themes to play in 2014

10th March 2014

img

Hargreaves Lansdown’s senior investment manager Adrian Lowcock, outline five investment themes to play in 2014 and what funds to consider…

Japanese equities: buy markets that are cheap

Our analysis shows that Japanese shares remain cheap. In two years the yen has fallen 25.4% against sterling with further falls possible. A weaker yen is good for Japanese exports and has already boosted Japanese company earnings. The result is companies’ profits have grown more quickly than their share prices and in spite of the strong rally Japanese shares still look attractive.

Fund pick: GLG Japan CoreAlpha

The fund is managed by Stephen Harker who has over 9 years of experience investing in Japanese equities which we believe is important. His approach is to buy unloved companies at low valuation levels and wait for them to return to more normal levels. This approach works particularly well in markets that are undervalued such as Japan.

Healthcare: consistent earnings growth

Concerns over future earnings, due a lack of new blockbuster drugs in the pipeline and existing drugs coming off patent (the patent cliff), have weighed on healthcare the shares. Despite this, pharmaceutical companies have improved their pipelines and managed to grow profits. The pharmaceuticals industry has an impressive record of consistent earnings growth going back at least 40 years (1973). The ability to generate consistent earnings growth, even in tough markets, has arguably not been fully recognised by the stockmarket providing opportunities for investors.

Fund pick: Rathbone Income

Managed by Carl Stick, is a fund with exposure to this theme. It has 13.7% in the pharmaceuticals and biotechnology sector.  The fund has a number of attributes we like; there is a bias towards small and medium-sized companies and Stick runs a concentrated portfolio of companies which have a high starting level of dividend as well as the ability to grow this over time. The fund currently yields 3.5%.

UK smaller companies: exceptional active managers

The UK Smaller companies sector has performed well over the last couple of years returning 80.6% over two years compared to 23.8% for the FTSE 100. This makes it harder to find companies to invest in.  However the UK smaller companies sector has some exceptional fund managers with decades of experience.  They are amongst the best stockpickers and have a proven ability to find companies whose full potential has not been recognised by the market.

Fund pick: Standard Life UK Smaller Companies

The fund has returned 359% over 10 years compared to the FTSE Small Cap eX IT index returning 107.9%. The fund tends to outperform in bear markets and the later stage of the recovery phase. Mid-2012 marked the beginning of a recovery and therefore the fund lagged. Manager Harry Nimmo believes we are approaching the start of another good time for the fund as the recovery broadens.

Equity income: Don’t forget dividends 

Equity Income is one of the best long term investments around. The philosophy is simple – get rich slowly. Invest in companies which have strong cash flow and are able to grow their businesses, profits and dividends. Reinvesting dividends has a huge long term effect on total returns. £100 value invested in UK equities in 1899 would be worth £14,915, rising to £2.2m if the dividends had been reinvested.

Fund pick: Artemis Income

Through their stock picking skills Adrian Frost and Adrian Gosden have maintained an excellent track record. We like that they are avid investors into companies that have the cash flow to sustain and grow their dividends. The fund yields 3.90%.

Mining shares: a contrarian investment

Contrarian’s do something different from the crowd; they will invest in businesses which the market has shunned and whose potential is not fully recognised. Mining stocks fit this potentially undervalued category; they have been a poor investment over the last 2 years with both their earnings and share prices tumbling.  Some contrarian managers have started buying mining companies at a discount. The skill is to pick those stocks which have the potential to recover whilst avoiding companies which look cheap but have little or no room for recovery (value traps).

Fund pick: Old Mutual UK Alpha Plus

Manager Richard Buxton was buying mining companies towards the end of 2013 because he believed the market was overly pessimistic.  He runs a concentrated portfolio of reasonably valued larger and mid-sized companies with good growth potential. This fund could make an excellent choice for investors in search of capital growth.

2 thoughts on “ISA ideas: Five investment themes to play in 2014”

  1. perfectinvesting says:

    Best Hyip Sites – Earn Big Money From Paying HYIPs
    Hyip sites has become one of the easiest way to earn dollars online. Hyip means high yield investment program. Hyip sites are not just like ptc or some other program. Their You must do some work. But here you don’t need to do any work. This program needs some investment. sWhen you invest in Hyip sites, they will trade online with your investment and gain huge profits. Then after they simply distribute profit of investment to all members who invested in their hyip sites. The process is very simple and you don’t need to sit all the day infront of your system. Most of the hyip sites are paying your profit daily. They will add interest daily to your account. You can request for payout or you can reinvest this same hyip sites. Some sites will pay your interest hourly or daily.
    http://www.perfect-money.org

  2. bradleyspeck says:

    Good day to you all, am here to let you know that you can invest and gain within one week and get your profit

    Invest; $200 and get $400 in the next one week

    Invest; $400 and get $600 in the next one week

    Invest; $500 and get $800 in the next one week

    Invest; $600 and get $1000 in the next one week

    Invest; $1000 and get $2000 in the next one week

    Email us now via email.

    NNPCINVESTMENT@YAHOO.COM

Leave a Reply

Your email address will not be published. Required fields are marked *