Gold Magazine January - February 2014, Issue 34

EMERGING MARKETS JAPAN Once the world’s second-largest economy, Japan has been ousted from that position by China. But on the back of the implementation of some extraordinary economic measures, dubbed ‘Abenomics’ after its Prime Minister Shinzo Abe 2013, it has enjoyed a change in fortune. A devaluing of the currency hugely helped the country’s exporters, making their goods and services cheaper; while there has also been strong upgrades in corporate earnings. However, it is still troubled by debt. James de Bunsen, manager of the Henderson Multi-Manager Income & Growth fund, says: “Japan’s valuations relative to the rest of the world still look attractive. The government has strong political mandate to pursue reforms and achieve goals” JAPAN FUND RECOMMENDATIONS: Hollands says: “While the easy money phase has now happened, the Japanese restructuring story has further legs in it, with the exchange rate considerably more favourable to Japan’s exporters.” His top pick is the GLG Japan Cora Alpha fund, while Connolly cites the Aberdeen Japan Growth fund, both of which are 65% better over the past five years. The world’s emerging markets, typified by Brazil, Russia, India and China, the so-called BRIC nations, have endured a tougher time of late. But to put this in perspective, China – the powerhouse of emerging markets – saw its economy, which has slowed in recent years, still expand by 7.8% year-on-year in the three months to September 2013. The BRICs alone house some 40% of the world’s population, alongside a wealth of natural reserves. As they prosper, it is predicted their citizens will spend more money, driving markets higher. And while the BRICs may have suffered, they are trading at valuation levels near 2008 credit-crunch lows, offering a compelling buying opportunity but only for intrepid investors. Hollands says: “With valuations pretty COMMERCIAL PROPERTY Commercial property fell out of favour when the credit crunch hit back in 2008 but as the UK economic recovery gathers pace, it has come back on to the radar. Investors can spread their cash over a wide variety of properties, such as offices and retail parks, and the rents paid by tenants can provide a stable income above inflation for yield-hungry investors. There is also scope for capital growth over the coming years, too. bombed out, some commentators are signalling this area as a great buying opportunity. So for long-term investors, building emerging market positions over the coming months may be a perfectly sensible move – just don’t pile in blindly.” EMERGING MARKETS FUND RECOMMENDATIONS: Modray says: “While often volatile in the short term, the longer-term outlook for emerging markets remains very enticing.” He rates the JPM Emerging Markets Income fund, which launched in 2012 and has a high-yield bias. Hollands’ core pick is Lazard Emerging Markets, with investments in Hong Kong and Indonesia. It is up 105% over five years while Connolly recommends JPMorgan Emerging Markets, up 85%. COMMERCIAL PROPERTY RECOMMENDATIONS: Hollands says: “We favour funds with exposure to long leases, high-quality tenants and London and the South East.” His main pick is the 4.4% yielding Henderson UK Property Fund. Modray rates L&G UK Property, which has a yield of 2.8%, while Connolly is backing Ignis UK Property with 3.5% income yield, which has also risen by 21% over the past five years. WHAT DO I DO WITH MY MONEY? BlackRock Investment Institute offers these tips BIG PICTURE Helicopter View: We generally prefer equities over bonds, particularly in our base case Low for Longer scenario. Risk in Safety: Equities and bonds are becoming more correlated. This is making “safe” portfolios a lot more risky. Alternative Menu: Infrastructure, real estate and other alternatives are real diversifiers— and offer attractive yields in a low-rate world. Volatility on Sale: It is better to buy an umbrella before the rain. Volatility is cheap and many assets are expensive. EQUITIES Equity Value: Equities are not cheap but they are not (yet) in bubble territory. We generally favour Europe and Japan on valuation. Yield Caution: US yield plays will wrestle with tighter liquidity. Dividend growers still offer potential, as do non-US dividend payers. Emerging Idea: Our contrarian idea is to overweight emerging stocks vs. developed. Be selective and favour indirect exposures (multinationals). FIXED INCOME Carry On: Many bonds still look expensive and risky (especially government debt). Go for carry (yield) in a barbell strategy. Curve Plays: Low rates support short maturities. Tapering fears have hammered many long-term bonds back to reasonable valuations. Beware Traffic Jams: Easy to get into, hard to get out of. Liquidity could dry up fast in some credit markets when you need it most. THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS cover_story.indd 27 Gold 27 08/01/2014 16:42

Gold Magazine January - February 2014, Issue 34 | Page 27