Trade winds of our time
Investment experts say 2010 will be a difficult year, writes John Cradden
TRYING to figure out what way the investment winds are blowing has been always been tricky, but the economic slump over the past 18 months has many ordinary investors genuinely perplexed about to where to go next.
We asked a number of investment experts and advisers what sorts of opportunities investors should consider keeping a close eye on in 2010.
Gary Connolly, head of investments at Citadel Financial Advice, says that while this year would be another difficult year for the investment industry, and that many investors remained traumatised by the events of 2007 and 2008, there wasn't the same obsession with guaranteed investment products as there this time last year.
"I don't think that guarantees are ever good value, but perversely, now is probably a better time to be looking at them than 12 months ago," he says.
The frequently-repeated advice to investors to spread their risk and not put all their funds into one basket still stands.
"Many long-held beliefs and assumptions were up-ended in 2008, but the fundamental advice to investors should still be to diversify."
Mr Connolly suggests that UK property is among the better value investments at the moment. "UK property has bounced strongly off its lows in the middle of this year, but yields on offer from prime property in central London, which can be anywhere between 6pc and 7.5pc, still offers very attractive value."
For those with more appetite for risk, a longer-term bet is an equity portfolio with a "strong value bias", such as dividend funds, he says. "Until such time as the capitalist system fails, equities should deliver better returns than deposits and other risk-free investments."
Eamon Porter, principal of Aspire Wealth Management, also suggests keeping an eye out for equities, particularly of the European and US variety.
He says a combination of recovery in European consumer demand with reduced overheads for many companies (because of staff cuts and reduced costs) will lead to greater profitability and upward movement in share prices.
US equities also look set to gain amid early signs of US economic recovery, says Mr Porter, and may also produce a currency gain for eurozone-based investors thanks to a recent rise in the strength of the US dollar.
Looking at investment funds, Michael Kiernan, chief executive of myadvisor.ie, a firm of financial advisers, suggests that those seeking a low-risk option should consider "absolute return funds".
"As the name suggests, absolute return funds are designed to deliver a decent return in both positive and falling markets," he says.
"It is not likely to deliver more than high single-digit returns, but it is designed to get you growth no matter what the underlying markets are doing, which at the end of the day would suit a lot of investors needs." Mr Porter also recommends these funds for those wary of risk and if they are managed well, but says they can be a "doubled-edged sword".
"It means that when markets fall you don't suffer huge losses but when the markets recover you don't see huge gains in line with the way the market bounces," he said.
Protected equity funds are another low-risk investment fund option but, like absolute return funds, you may miss out on the full gains to be had if the market recovers.
"In both cases, the cost of these strategies is to reduce market exposure and therefore market returns," says Mr Porter.
Mr Connolly of Citadel also acknowledges the growing popularity of absolute return funds, but adds that there is only a limited choice on the Irish market.
"They can be quite complex, so I don't expect there to be a lot of them launched next year."
There has been growing interest in environmental investments, which are focused on companies engaged specifically in "green" industries, such as renewable energy or water technology. "I do think that environmental funds and investing will become increasingly popular over the next five years," says Mr Connolly.
"As with any other investment, where there is increased investor interest, you do get prices responding, so performance should respond."
However, he warns that interest in this sector can be "fad-like" and lead to extremes.
"In 2007 and 2008, many sectors in the alternative energy space had performed exceptionally well, reached extreme valuations levels and ultimately were severely affected by the downturn, so investors need to tread with caution."
One quirkier, niche investment choice is forestry/timber, an investment that makes a good case for itself as part of a diversified portfolio, says Mr Connolly. "A diversified portfolio will have a series of expected returns that are driven by a vast array of factors.
"Timber and forestry are driven by factors that are not currently represented in most retail and institutional portfolios."