The FTSE 100 rose an impressive 6.3% last month. The world of investing is littered with sayings and superstitions, one of which is that the market's performance in January sets the tone for the remainder of the year. According to the saying, if the market rises in January it will also be higher at the end of the year than the start and vice versa.
In 20 out of the 29 years since the FTSE 100's inception it followed the saying. However, it can be dangerous to set too much store by a relatively weak trend. The FTSE 100 fell 6.4% in January 2009, but those sitting out the rest of the year would have missed a 22.1% gain over the whole year. Similarly there are years when the market has disappointed following a buoyant January.
Stock market sayings are a result of the human desire to find order and patterns in random numbers, but often ignore the events around them that cause share prices to rise and fall.
This year, as ever, it is difficult to predict how the market will perform. There are a number of questions to ask:
- Is the market good value at its current level?
- What is the outlook for company profits?
- What effect will politics have, especially in the euro zone and US?
The answers are not straightforward, and therefore in my view it is better to take a longer-term view and avoid trying to time the market.
That said, I do believe the UK market looks fair value at present, and shares certainly look cheap against some other asset classes such as gilts and corporate bonds. Given continued low returns on cash, shares are starting to appeal to many new investors who can afford to and are prepared to take on the additional risk. Although the economic outlook remains weak in the UK it is improving elsewhere in the world, and the euro zone debt situation appears less of a concern (at least for now).
For long-term investors prepared to accept the inevitable ups and downs of the stock market, I believe the best strategy is to invest in actively managed funds whose managers are able to add value through their stock picking skills. Below I have highlighted two of my favourites, one investing for growth, the other for income. I believe both could make great core holdings for a portfolio, though like all investments they will fall as well as rise in value and you could get back less than you invest.
Anthony Cross and Julian Fosh look for companies with qualities that rivals will struggle to replicate, such as intellectual capital. This often results in a dominant or secure market position and an ability to grow faster than their peers. As well as domestically-focused companies, they also seek those with exposure to faster growing international markets. It's not a guaranteed strategy but their approach has worked well in recent years and I believe it will continue to bear fruit over the long term.
Adrian Frost and Adrian Gosden assess a company's value as a reflection of future earnings and dividends. They look for companies on the basis of their free cash flow and put together a portfolio which not only has an attractive yield today but the potential to increase dividends in future. The fund currently yields 4.4% (variable and not guaranteed).
If you're considering an investment in any of the mentioned funds or indeed any other fund available in our Vantage service, please ensure you the individual Key Investor Information Documents which contain details of the risks involved.
The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.