Best investments to make in 2016: smaller companies, Japan, US, emerging markets
Where should you invest your money in 2016? Here is what the experts reckon.
As 2015 draws to a close many of us will be looking at how our investment portfolios have performed over the last 12 months and considering what might do well in 2016.
We have asked a number of investing experts what they believe the next 12 months will hold, and what investments are worth a look for the new year.
The outlook for the UK
Adrian Lowcock of Axa Wealth points out that while 2015 saw the FTSE 100 hit new heights, it has fallen sharply in recent months, in part due to falling commodity prices.
“Concerns over commodity related stocks are set to remain in 2016, however there is still some value in the UK market with mega caps looking cheap, albeit with limited growth opportunities. In addition there is value in part of the UK smaller companies market,” says Lowcock.
Lowcock recommends investing in the Franklin UK Smaller Companies fund, explaining: “The managers are willing to take a contrarian stance when market mispricing creates outstanding investment opportunities.”
Finding income
Russ Mould, investment director at AJ Bell, points out that deflation will be an issue investors need to address next year, pointing out that firms with good cash flow and dividend-paying potential will be highly sought.
“This still speaks loudly in favour of tobacco stocks, as they are managed for cash, and also well-run income funds, with a UK or global mandate, which are managing the reach for yield and avoid taking excess risk to generate income,” he says
Mould recommends Invesco Perpetual Income, Fidelity UK Moneybuilder Dividend and the JOHCM UK Equity Income.
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Japan continues to shine?
In 2015 Japanese funds were some of the best performers and that could continue.
David Jane, fund manager on the Miton Multi Asset Team, says: "Our preferred asset class for 2016 remains equities, especially in Japan where self-help from internal reform and valuation make the story slightly less dependent on global economic activity than other equity markets."
But not everyone agrees. “I have concerns that the pace of structural reforms in Japan may take longer than western investors can stomach. It may even be abandoned all together in the face of traditional opposition,” says James Thomson, manager of the Rathbone Global Opportunities Fund.
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The case for the US
Instead of Japan, Thomson is investing in America. He argues that a combination of low commodity prices, low inflation and a strong dollar should continue to push valuations higher than most people think.
He adds: “US companies are also benefitting from falling input costs and buoyant consumers. As a nation of consumers, the scale of spend for the typical US family on food and gas is well chronicled, so the cheaper those remain, the happier the average American is likely to be. And that usually leads them to splurge on other things as well.”
What about emerging markets?
Allan Conway, head of emerging market equities at Schroders, reckons India has the potential to deliver higher growth than even China over the long term.
If you are looking to invest in Asia try the Schroder Asian Income fund, according to Axa Wealth’s tips for 2016. “Valuations in both Asia and emerging markets appear attractive relative to the developed markets of the UK and US,” says Adrian Lowcock of Axa Wealth. “However, emerging markets are still suffering from a slowdown in global growth due to their export-led economies and build-up of debt."
Any individual stock tips?
If you are looking for some stocks to add to your portfolio for 2016 you may want to consider advertising giant WPP, says The Share Centre.
Ian Forrest, investment research analyst at The Share Centre, points to its recent share price rally, and the fact that it is likely to benefit from the large worldwide events taking place in 2016, including the US presidential election, the Olympic and Paralympic games and the EU referendum.
Those investors looking for a small stock to take a punt on for 2016 should take a look at OPG Power Ventures, says Forrest. This is a small, AIM-listed company that operates coal-fired power plants in India.
“We believe it is an interesting stock choice for investors seeking growth within their portfolio in 2016,” says Forrest. “With the country’s demand for power in excess of supply, the group’s management are confident that its expanding operations will benefit from this and lead to further growth opportunities.”
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