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INVESTMENT IDEAS FOR 2020

Growing your money for the future

Important - This information isn’t personal advice. If you’re unsure if investing is right for you please speak to an adviser. Unlike the security offered by cash, all investments and their income can fall as well as rise in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

Kate Marshall
Investment Analyst

Five funds for 2020

Our favourite picks for an unpredictable year

Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.

Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

Today’s headlines look much like those a year ago – stories about Brexit and a US/China trade war are now a familiar presence. So too are the economic uncertainty and market volatility that have come with them.

But the success of most companies isn't anchored to the health of the economy over the long run. A business’ ability to generate earnings is much more important and – crucially for investors – a far better predictor of investment returns. In fact, most major markets climbed higher in 2019 despite the uncertainties.

There are no guarantees over what might happen next. Leading economic indicators are pointing to a sluggish 2020, there’s still a chance of a disruptive Brexit and a number of world leaders have form for surprising us.

This year we're taking a look at what we think are a good mix of funds that could perform well in different environments. From a racier emerging markets option, to one seeking income, and another that could provide some stability when the market outlook isn’t so rosy.

Remember investments should always be made for the long term – we suggest at least five years. This article isn’t personal advice or a recommendation to invest, and remember all investments can fall as well as rise in value – you could get back less than you invest. If you’re not sure an investment is right for you, please seek advice.

Aviva Investors UK Listed Equity Income

Focused on companies that aim to make lots of cash to pay dividends

Jupiter Strategic Bond

Offering flexibility to look for value in all parts of the bond market

Troy Trojan

Aiming for growth and to limit volatility

JPMorgan Emerging Markets

A dynamic sector with long-term promise

First State Asia Focus

An experienced team hunting for gems in an exciting area


5 shares to watch for 2020

Nicholas Hyett
Senior Equity Analyst

5 shares to watch for 2020

This year’s shares to watch lean towards profitable, cash generative dividend payers.

Investing in individual companies isn’t right for everyone. Our shares to watch are for people who understand the risks of investing in equities. It’s higher-risk as your investment is dependent on the fate of that company – if a company fails you risk losing your whole investment.

Investors should make sure they understand the companies they’re investing in, the company specific risks, and make sure any businesses they own are held as part of a diversified portfolio.

We’ve put more emphasis on dividends than in previous years, with three of the five companies having prospective yields above the market average. That’s no accident.

In a world where high growth companies are richly valued and economic growth looks uncertain we think it pays to focus on profitable, cash generative businesses.

It means there’s a bit more cyclicality in the mix than usual – companies that are more closely tied to the wider economy. WPP, Ibstock and DS Smith are all more exposed here, and their share prices could suffer if conditions turn sour. However, we think they have the resilience to weather turbulence in the long run.

This article isn’t personal advice. If you’re not sure if an investment is right for you please seek advice. All investments fall as well as rise in value so you could get back less than you invest. Yield figures are variable and not guaranteed. They should not be seen as a reliable indicator of future income.

Ibstock

Foundations for the future

DS Smith

The whole package

Keywords Studios

Game maker’s one-stop-shop

Novo Nordisk

Growth in hormones

WPP

Turning a corner?

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.


Investment trusts for 2020

Kate Marshall
Investment Analyst

Investment trusts for 2020

Investing in these investment trusts isn’t right for everyone. Investors should only invest if the trust’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.

Investors should understand the specific risks of a trust before they invest, and make sure any new investment forms part of a diversified portfolio. If you’re not sure an investment is right for you seek advice.

Most major global markets had a good run over 2019, despite plenty of economic and political issues for investors to worry about. There's still lots going on in markets at the moment (dare we mention the 'B' word?), much of which is likely to continue into 2020.

In reality, predicting what will happen to markets over the coming year is a futile exercise. We tend to suggest investors focus on the longer term, as ultimately the strongest companies will survive and continue to generate earnings that could help drive share prices.

But caution might be warranted, as some economies are showing some weakness and earnings growth is no longer as high in some markets. For that reason we've picked a range of investment trusts to consider, which focus on different areas of the market and could help maintain diversification in a wider portfolio.

Investment trusts can borrow money in order to buy more investments. This is called ‘gearing’. It magnifies gains and losses, so if used it increases risk. Please make sure you’re comfortable with a trust’s approach to gearing, and the costs and charges, before investing. Details can be found in the trust’s annual report. Please read each trust’s Key Information Document too.

City of London

Personal Assets

Templeton Emerging Markets

Aberdeen Asia Focus

Witan Investment Trust


The importance of diversification

Nadeem Umar
Research Editor

The importance of diversification

It may be tempting to read our investment ideas for 2020, pick the one that you think sounds best and put all your money into it. But that’s not how they should be used, as it’s unlikely to be the best option for most investors. We write them to give you a starting point for your own research, not to give you personal advice.

It’s important not to put all your eggs in one basket. We always suggest investors spread their money across a range of investments.

There’s no hard and fast rule for how many investments you should hold in a portfolio. Too few can add risk, while too many can be hard to manage and mean any gains are diluted. As a rule of thumb we’d suggest holding no more than 20 funds. For most people only 10 funds are needed for a well-diversified portfolio.

The benefits of a diversified portfolio

The main reason for diversifying a portfolio is to reduce risk. If you hold just one investment and it performs well, you enjoy all the benefits. But if it performs poorly you suffer all the losses.

Diversification can help to smooth the peaks and troughs. By increasing the number of investments you hold, you decrease the impact of each one’s performance on your overall returns.

But simply holding lots of different investments doesn’t guarantee diversity. When looking to diversify your portfolio, it’s important to think about how similar your investments might be.

Holding lots of investments influenced by the same external factors could mean your portfolio as a whole performs much the same as if you held just one.

Instead, consider investments which are driven by different factors. While a general economic downturn will still hit performance, sector or geographical specific problems should only impact a limited number of investments. Though all investments can fall as well as rise, so you could get back less than you invest.

Funds naturally provide some diversification by holding a spread of investments, reducing the risk from any one on its own. But investors still need to consider if holding a single fund provides sufficient diversification.

Funds with a narrow focus – like geographical or sector-specific funds – will often see their assets move as one in response to market conditions. With all the assets moving in the same direction at the same time, this can mean that investors still face dramatic movements in the overall value of the fund. Though even funds with different remits can have similar performance.

The dangers of over-diversification

Despite the advantages of a diversified portfolio, too much diversification can hinder, rather than help, performance.

A very large number of holdings risks simply tracking market performance – some fund managers refer to this as “di-worse-ification”. Each holding doesn’t make up a sufficient proportion of the overall portfolio to have a significant impact on its performance. Not only does this offset any benefits from picking good investments, but a lower-cost tracker fund could be considered as an alternative.

Holding a huge number of different investments can also expose investors to higher costs – as well as being harder to monitor and manage. While there’s usually no cost to buy and sell funds, regularly trading shares will mean dealing commission and stamp duty can eat into overall returns, requiring greater performance to achieve the same results.

It’s important to regularly review and, if necessary, rebalance your portfolio to make sure it still meets your objectives. When you get closer to retirement, for example, depending on which retirement option you choose consider letting go of some riskier investments and focus on those that generate a sustainable income.

Our Portfolio Analysis tool can help clients to understand the composition of their portfolio and decide where changes might need to be made.

Finally, if you’re not sure of the suitability of an investment for your circumstances then please contact us and we can put you in touch with a financial adviser.

Find out more about diversification