Gold Magazine January - February 2014, Issue 34 | Page 26

COVER STORY

WHAT DO I DO WITH MY MONEY?
Moneywise reveals five stockmarket sectors ripe for investors in 2014.

UK

Between July and September 2013, the UK economy grew by
0.8% – its biggest three-month gain since 2010 as exports and
overall business activity improved. On the back of this, the UK
stockmarket rose strongly. Long-term returns from UK Equity
Income funds tend to be attractive, in part thanks to dividends.
Gary Potter, co-head of multi-manager at F&C Investments,
believes that there is more to come. He says: “The UK still looks
very attractive and shares will once again surprise on the upside
next year. I believe the FTSE 100 could surpass its previous high
of 6,390 in 1999 and could push on to 7,500 in 2014.”
An area that remains hugely popular with investors is equity
income. These funds invest in dividend-paying firms – companies that share their profits with investors – and 2014 is set to
be a bumper year for dividends, with UK-listed firms expected
to shell out some £100 billion in investor payouts. While the
numbers are inflated on the back of an anticipated £16.6 billion
one-off special dividend from Vodafone, the total payout is still
more than £30 billion above the pre-recession high, according to
Capita Asset Services.
Equity income funds are also considered to generally be a sensible way to play the UK stockmarket, given they typically invest
in large firms with plenty of cash on their books. Justin Modray,
founder of independent financial adviser Candid Financial
Advice, says: “Long-term returns from UK equity income funds
tend to be attractive, in part thanks to dividends, and their more
defensive nature may prove useful if we experience another
downturn.”

UK FUND
RECOMMENDATIONS:

Modray recommends Cazenove UK Equity Income fund. It
is investing in big and stable household names such as Vodafone
and Tesco. It has returned 141% over the past five years and
pays a historic yield of 3.9%.
Patrick Connolly, a financial planner at Chase de Vere, and
Jason Hollands, managing director at Bestinvest, both tip the
Threadneedle UK Equity Income fund, which counts BT and
ITV among its top holdings. The fund has returned 110%, and
yields 3.5%. Hollands also likes Unicorn UK Income. He says:
“It differs radically from most UK Equity Income funds by focusing on small-cap names, which have been faring well recently.
It has achieved a considerable 256% return over the five-year
term and has a yield of 3.2%.

US

The world’s largest economy appears to be exiting the doldrums thanks to ultra-low interest rates and vast injections
of cash, via so-called quantitative easing (QE) from its central bank, the Federal Reserve.
Like the UK, the US has seen its economy steadily rise and
it rose by a better-than-expected 2.8% in the three months
to the end of September. Most notably, 2013 witnessed
US shares enjoy their best year for a decade, raising fears
that the market is becoming expensive. The year proved to
be a boon for corporate earnings, with many firms delivering results ahead of expectations.
Russ Koesterich, chief investment strategist at BlackRock,
says: “This strong trend in corporate earnings was been a
key factor in supporting the rally in stocks in 2013. We
believe this can continue into 2014.”
However, experts warn that while the case for the US looks
more promising over the long term, there is a risk the
recovery could slow when the Federal Reserve starts scaling back its QE initiative, which is predicted to happen at
some point in 2014. As such investors should expect some
volatility.

US FUND
RECOMMENDATIONS:

Modray likes the Fidelity Moneybuilder US Index, a passive fund that mirrors the performance of America’s S&P
500 index, which includes technology giants Apple and
Google. Connolly rates the AXA Framlington American
Growth fund, up 117% over five years, which also has
investments in the likes of Apple and Google.
Hollands favours GAM Star GAMCO US Equity, with
holdings in American Express and Texas Instruments. It
has delivered a 152% return (in US dollar terms) to its
investo