Louise McBride: What are the hottest investments for 2013?
WHAT will be the hot tips of 2013? Last year investors made big money from Irish oil stocks, peripheral European sovereign bonds and niche markets, investments may become less exotic this year.
"The two biggest clouds on the investment horizon may lift a little in 2013," says Pat McCormack, head of wealth management with Barclays Wealth. "In the US the fiscal cliff is slowly being tackled, and here we see the ECB successfully backstopping the euro." Although there is still much uncertainty, if you've a wad of money sitting in savings accounts, now could be the time to put it into shares or other investments.
But do your homework and choose well. The Sunday Independent asked some of the country's shrewdest financial advisers for their hot tips for 2013.
The Irish property market has resembled a car crash since 2007 -- but now could be the time to invest in Irish commercial property, according to Gary Connolly, principal of the investment consultants, iCubed.ie.
"For anyone with cash, there's extraordinary value in commercial property at the moment," says Connolly.
"If you're considering investing in commercial property, choose offices in prime locations in Dublin." As well as dropping substantially in price, rental yields on well-located offices in Dublin are as high as 8 per cent. "To any longterm investor, that's got to be value," says Connolly.
Still, he urges against residential property.
If you have not invested in equities in the last four years, you may have missed the boat -- so be choosy about where you put your money, warns Connolly.
"We've had four years of positive returns in equities, so the case for investing in shares is less compelling today than it was a few years ago," says Connolly.
"There is however a case to invest in European equities as they offer much better value than US equities." 'One fund has made a gross annual return of 8.2 per cent over the last four years' Vincent Digby, founder of the financial advisers Impartial, and a former head of funding with BoI Global Markets, feels that European shares could do well this year as long as the ECB controls bond spreads of weak eurozone countries.
And if you've got an appetite for risk, it could be worth your while putting money into Chinese shares, adds Digby.
"Emerging markets and China in particular have underperformed when compared to the US," says Digby. "With increasing confidence that China's growth has stabilised, 2013 might see a reverse of this underperformance." Digby tips Standard Life's China Equities fund for investors who are prepared to take some risk with their money. Over the last three years, this fund has outperformed the average equity fund that has invested in emerging markets, says Digby.
McCormack also feels it could be worth taking a bet on Asian stocks.
"Asia is our preferred emerging region," says Pat McCormack. "A soft landing for China and any stabilisation -- together with rising investor appetite for risk -- should allow the region's stocks outperform other emerging blocs." Ross Curran, managing director of Curran Financial Services, recommends some exchange traded funds (ETFs are funds which track the performance of a bunch of stocks) for investors comfortable with risk.
These include the iShares Stoxx Europe 600 ETF and the JP Morgan Emerging Markets Bond ETF.
Gary Hanrahan, managing director of financial advisers Capital Options, feels it could be a mistake to keep tens or hundreds of thousands of euro sitting in deposit accounts -- because of falling deposit interest rates, higher taxes on any interest earned, and the prospect of higher inflation.
"Those with significant cash balances should start to diversify away from deposits into other types of investments such as equities and possibly property," says Hanrahan.
"If you are looking for a longer term investment and are prepared to take some risk because of falling deposit rates, I'd recommend Standard Life's Global Absolute Returns Strategies Fund. This has made a gross annual return of 8.2 per cent over the last four years."
The amount of tax you pay on the interest earned on savings takes a huge bite out of your gains. You must now usually pay between 33 and 36 per cent Dirt on the interest earned on savings.
Furthermore, next year, we will also be paying PRSI on savings interest.
You can however avoid paying large amounts of tax on the interest earned on your savings if you put your money into an An Post savings cert or bond. Many of An Post's savings products offer a tax-free -- or partially tax-free -- return. You may therefore make more money after tax by investing in an An Post savings cert, bond, or National Solidarity Bond than you would with other investments.
"With most investment houses and banks now offering less than 4 per cent gross return on five-year fixed-term investments, the returns on these funds after tax are now less than 3 per cent," says Curran.
If, for example, you put your money into a five-year investment bond or fund which pays a gross return of 3.6 per cent, your return after tax could work out at 2.4 per cent a year, according to Curran.
By contrast, you'll make an annual investment it's your money Louise McBride Join the debate at www.independent.ie return of about 3.55 per cent after tax on An Post's 10-year National Solidarity Bond. Similarly, An Post's five-year saving cert pays 2.83 per cent interest taxfree a year.
Don't touch government bonds with a barge pole! That is the overwhelming message from our experts.
"One thing which should be avoided like the plague are government bonds from core European and US economies," says Connolly.
"They're far too expensive and the investment yields are less than 2 per cent." Digby agrees. "We see no value in holding low-risk government bonds as an investment proposition." McCormack thinks it is better to put your money into stocks instead of bonds -- and into corporate rather than government securities.
"We recommend holding fewer government bonds, and less cash, than usual," says McCormack.
It's not that long since investors -- worried about the break-up of the euro -- were pouring money into 'safe haven' currencies, such as the British sterling and the US dollar.
McCormack is wary about recommending any of the major currencies, as each has its problems.
"The pick of the bunch in 2013 is the dollar, which we see as eventually becoming more of a cyclical than safe-haven opportunity," says McCormack. "Our least favoured currency is the yen, which is expensive and facing a monetary rethink in the face of the worst structural growth in the G10 countries."