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Our monthly research roundup – fund manager outlooks for 2020

As we make our way into the New Year, Kate Marshall, Senior Investment Analyst, speaks to three of our favourite fund managers to find out their views for the year ahead.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

2019 was a busy year for investors, as numerous political and economic events stole the headlines and overshadowed the investment landscape. As we head further into the New Year, some of our favourite fund managers tell us what they think lies in store for investors in 2020.

Jason Pidcock – Jupiter Asian Income

Political noise is likely to impact markets once again in 2020, according to Jason Pidcock. As a fund manager, he sees it as his role to work out what news is and isn’t relevant.

Issues that could have the biggest impact on investor sentiment this year include the US Presidential election in November, along with policy announcements from potential candidates beforehand, as well as the state of the US/China trade war.

Pidcock thinks trade uncertainty is already the main factor weighing on global manufacturing. Not only has it impacted certain companies and sectors in China, but in other regions such as Europe too.

Some economic commentators think Donald Trump’s impeachment could force him to reach a trade deal with China sooner rather than later, in the hope it stimulates the US economy and boosts his chances of winning the upcoming election. This might be wishful thinking though.

In Asia itself, Pidcock says political unrest is likely to simmer in Hong Kong, but it'll probably look settled and peaceful when compared with the Middle East.

Growing concern for the environment is another factor in how both businesses and investors behave. There's the potential for governments to implement tighter laws and regulations for any companies linked to the environment – from energy providers and packaging companies, to those involved in fast fashion and transportation. Ultimately this could have a big impact on how they operate and grow profits.

Each year brings new challenges for investors. But Pidcock focuses on companies he thinks can overcome these. He specifically likes those that could generate plenty of cash to support growing dividends, and he thinks Asia still offers exciting long-term investment opportunities.

The manager also points out that Asia's largest companies are still much smaller than the largest US companies, so they have much greater room to grow. He thinks these businesses are underappreciated and overlooked by many investors, especially in countries such as Singapore, Australia and Taiwan, which is home to world-class technology companies.

Adrian Frost – Artemis Income

Courtesy of December's election result, Adrian Frost thinks the outlook for the UK is more positive. The result also helped the UK stock market to bounce back towards the end of 2019. But even with this boost, he says the UK still looks good value compared with a lot of other major markets. This could whet the appetite for overseas investors to return to the UK after turning their back on its market for much of the past three years.

The full impact of Britain's exit from the EU is still uncertain though. As he puts it, the "Brexit fog has been replaced by a swirling mist". Brexit progress will continue to make headlines and any ongoing political wrangling is likely to create periods of market volatility.

Elsewhere, Frost thinks the path of interest rates will, as ever, be closely watched. Any return to "normal" interest rates could unsettle markets (higher rates are often seen as bad for shares because their potential returns look less attractive compared with other assets such as cash). At the same time, the manager believes this sort of interest rate policy could improve the longer-term outlook for markets.

In terms of income, Frost says companies aren't growing that fast, so dividend growth could be modest this year. But to make up for this, the current yield on the UK stock market looks attractive. The UK's FTSE All-Share Index currently yields 4.1%, while the Artemis Income Fund yields 4.4%. However, yields aren't guaranteed nor an indicator of future income.

Looking more broadly, Frost expects the issue of the environment and climate change to dominate news stories. Its recognition is likely to have a longer-term impact on businesses, and therefore the outcome for their investors. As a result this topic is an increasingly important part of the analysis carried out by Frost and his team.

Jim Leaviss – M&G Global Macro Bond

Will 2020 be the year the bond bubble finally bursts? Jim Leaviss doesn't think so.

While there have been some blips along the way, bond prices have continued to rise steadily, and their yields have fallen, for the past three decades. And at the start of each year, many financial experts have told us we can finally expect the bond bull run to reach the end of its course.

Leaviss offers several reasons why the 30-year downtrend in bond yields is yet to break. Firstly, demographics, and specifically the impact of baby boomers on the economy.

The post-World War 2 baby boom led to an influx of labour into the workforce in the 1970s. Economies became more productive and wealthier, and once the boomers reached peak earnings, their desire to save and invest also increased. Demand for income and perceived "safe-haven" investments grew, which drove demand for bonds, pushing up their prices and down their yields. With income scarce from other sources, this demand could be set to continue.

Secondly, deflation (and the struggle to boost inflation), especially in developed economies. When inflation risks are higher, investors are typically compensated with higher bond yields. But we haven’t had much inflation in recent years and the potential for deflation is picking up.

A lot of this is due to the fall in price of consumer goods. The rapid pace of innovation continues to drive down the cost of technology-related products, and the internet allows us to find any product at the cheapest price available.

Innovation also changes the way businesses operate – it increases efficiency and reduces the need for human capital in the workforce (we have already seen this in factories and supermarkets, for example). This helps to lower costs and could help businesses maintain competitive prices for their goods and services.

There are other reasons bond prices have remained high, and arguably some of these are now less relevant. But demographic trends and the potential for deflation could underpin bond prices for some time yet.

That said, with prices so high, Leaviss sees little value in some parts of the bond markets. Many developed market government bonds, for example, offer negative real yields (the yield investors get after the effect of inflation). So this is an area he's less positive about than he's been in the past. If there's a significant rise in bond yields this year, particularly in UK, German, US and Japanese government bonds, then he's likely to add to investments here.

Our research is provided to help you make your own investment decisions. It isn’t personal advice. If you’re not sure if an investment is right for your circumstances, please seek advice.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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