Charles Bathurst-Norman, Freddie Woodhead and Karen Lau give their opinions on investing in the year ahead.
Starting with a look back at 2023, can you pick a standout experience for you as an investor?
Freddie: Inflation and interest rate expectations continued on from 2022 to dominate the minds of investors. Happily, the advances in AI provided some much-needed support, which helped to mitigate against sustained tough trading conditions.
Karen: During 2023, being an investment manager observing and dealing with the narrowing of performance to a few stocks has been testing. Although we have exposure to most of these, we try to ensure our clients have a diversified portfolio and so the performance of the “Magnificent Seven” was challenging as we do not wish to expose our clients to an overly concentrated portfolio.
Charles: This year, a number of new studies helped make the case for weight management as a focus of treatment for not just obesity but related illnesses such as heart disease and this has driven record levels of consumer demand and setting up the new class of appetite-suppressing drugs to surpass initial estimates for blockbuster growth. I believe these results are just the tip of the iceberg when it comes to new growth opportunities for weight loss medicines and market expansion. A slimmer Santa Claus might not be scoffing down all the mince pies this time next year.
As we approach 2024, what are your thoughts about what investors could expect and how the year might unfold?
Freddie: The themes we have seen this year will continue until we have more clarity on where interest rates may settle and whether we suffer any sort of second wave of inflation or indeed a recession. Expectation of the latter were considered high for 2023 but have failed to materialise. Consensus leans towards a ‘soft landing’ and we will continue to take a cautious approach.
Karen: We have elections coming up in the US which will impact global outlook and for us in the UK, we may see changes in policies and taxation which can distract investors from a longer-term view. It is important to keep a clear long-term view and to ignore the short-term noise. Interest rates expectations could have the most impact on markets.
Charles: Whether they are new or resurgent, one certainty is that further risks will emerge in 2024. For investors, they can expect a potentially divisive (both domestically and geopolitically) presidential election cycle looming in the United States, less so in the United Kingdom where at the end of an election cycle the spoils of the centre ground will be fought over with far less reaching consequences. Growth in Europe appears to be quickly succumbing to higher interest rates and may fall into a recession. China’s structural challenges will continue, balancing the competing interests of alleviating leverage in the property sector while supporting domestic consumption.
What do you think the first quarter of 2024 could hold for the UK economy and markets?
Freddie: Inflation remains stickier than other parts of the world and we see this continuing into 2024. That being said, valuations do look cheap vs the US and the gap could close if we see conditions improve.
Karen: We have had a little taster in recent weeks on where the market might start to perform as the US Federal Reserve outlined the likelihood of rate cuts which tends to reverberate in global markets. The first is expected to be at the end of Q1 2024 and so I suspect UK markets may be relatively buoyant in anticipation.
Charles: The valuation multiples of many leading UK-listed global companies remain at a notable discount to their international peers listed in other markets and I would expect to see a rotation toward these attractively valued, largely unloved stocks that also offer an element of defensive characteristics. I believe further stress in commercial real estate markets could create opportunities for investors in the new year and small-cap equities may be similarly affected by higher rates, given the levels of debt on their balance sheets and there may be opportunities to take advantage of investing in high quality companies at discounted valuations.
Do you think bonds will continue to hold a strong appeal for investors in 2024?
Freddie: Given the uncertainties that remain, we still see a place for bonds. Yields have fallen recently but if opportunities arise there could be room to add exposure to the asset.
Karen: We have seen the ‘higher for longer’ narrative on interest rates unfold this year but Jay Powell has signalled that there are likely to be cuts in 2024, which is very positive for equities and consequently leads to a fall in bond yields. For those looking for security, bonds could remain attractive if you can buy below par and hold to redemption, but this may ultimately destroy real value.
Charles: With bonds still offering such promising returns, I believe 2024 could continue to be a good time to invest in bonds. However, it is worth considering that for the last decade, bonds have posted annual returns of just 1% versus nearly 15% for equities, so bonds with shorter durations that are less sensitive to changing interest rates and therefore usually less volatile in a changing rate environment should be preferred as an alternative to cash on deposit in periods of interest rate volatility.
With thanks to:
Karen Lau, Investment Director
Freddie Woodhead, Senior Investment Manager
Charles Bathurst-Norman, Investment Director
Please note that the value of securities may go down as well as up and you may not receive back all the money you invest. Past performance is not a reliable indicator of future results. The views expressed are those of the authors and should not be considered a recommendation or solicitation to buy or sell any securities.