After a headlong rise of 50 per cent since March, the stock market has tumbled in the past few weeks. The question investors are asking is: does this mark the start of another savage downturn or are shares pausing for breath before continuing a longer bull run?
With uncertainty still prevalent in today’s market, Times Money is stepping in with some timely help. We have asked six experts where they think the FTSE 100 index will be at the end of 2010 and which sectors and stocks look attractive. We have also asked three independent financial advisers to map out an appropriate investment strategy for cautious, medium-risk and high-risk investors.
Mike Lenhoff, Brewin Dolphin
FTSE forecast: “We expect the FTSE 100 to be in the 5,000 to 5,500 range at the end of 2010. The markets have moved rapidly and are now discounting so much of the recovery that they will find it hard to keep rising.”
Sectors to follow: “We like natural resources and beverages as they can been viewed as a play on Asia’s growth. Miners provide the raw materials to fuel the Far East’s manufacturing boom, while drinks companies are selling more to Asian consumers.”
Share to watch: “Diageo, the drinks company. In Western economies its steady sales make it a defensive play, while elsewhere its global brands help it to carve out a lucrative share of the growing Asian consumer market.”
Julian Chillingworth, Rathbone
FTSE forecast: “We are looking for the market to gain 10 per cent over the next year, giving 5,500. But shares face a headwind in the coming months. The economic recovery will be slow, with consumers squeezed. We think more defensive stocks that have, up to now, been neglected, look attractive.”
Sectors to follow: “Growth is moving to emerging markets. We like beverages and foods, which can sell into growing markets such as China and Brazil.
Share to watch: “Pace, the set-top box manufacturer. It is expanding rapidly on strong growth in sales of highdefinition TVs. Turnover almost doubled between 2008 and 2009 and the company has net cash and no debt.”
Jeremy Batstone, Charles Stanley
FTSE forecast: “We think the FTSE 100 will end 2010 at 4,700. Investors are complacent about near-zero interest rates, but they are the exception. When rates rise conditions will be tougher. there will be a flight to quality stocks that can generate cash.”
Sectors to follow: “Telecoms and utilities, which have the capacity to pay rising dividends.”
Share to watch: “Vodafone. It has a decent yield of 6 per cent and is getting to grips with its problems.”
Paul Kavanagh, Killik & Co
FTSE forecast: “If interest rates remain low in 2010 we could see the FTSE 100 rise to 5,850 by the year’s end. Low rates are pushing cash depositors to seek income elsewhere, and with the market yielding 4 per cent, a lot of money is going into shares.
Sectors to follow: “Pharmaceuticals and technology. The former are on low valuations and generate a lot of cash, while the latter are staging something of a revival.”
Share to watch: “Autonomy, the software company. It makes software that can examine data held on computers and offers many applications in the world of regulation.”
Alec Letchfield, HSBC Global Asset Management
FTSE forecast: “We expect the FTSE 100 to rise to 5,500 by the end of 2010. We think that most of the excitement will come in the first half of the year. With unemployment high and interest rates set to rise in the latter part of 2010, growth could be anaemic.”
Sectors to follow: “Support services, where there are attractive special situations, and aerospace and defence, which should do well in the upturn.”
Share to watch: “Meggitt, the aerospace company, should benefit when destocking comes to an end, and it is currently on a low valuation.”
Justin Urquhart Stewart, Seven Investment Management
FTSE forecast: “We think that the FTSE 100 will end 2010 at about 5,000. We expect the index to rise in the coming months and then to fall back in spring. Growth will be insipid because much of the current rise in profits is through cost cutting rather than expansion.”
Sectors to follow: “Infrastructure and food retailers. UK companies are helping to build massive projects overseas, while food retailers are the ultimate defensive play — people still need to eat, whatever the economic climate.”
Share to watch: “Standard Chartered. It’s a UK bank that does very little of its business in this country but a great deal in the Far East, so it can capitalise on that region’s rapid growth.”
The experts’ risk strategies
Mark Dampier, Hargreaves Lansdown
Cautious investor: “I suggest a couple of funds that aim to preserve your wealth: Cazenove UK Absolute Target Fund, managed by Tim Russell, and BlackRock UK Absolute Alpha Fund, run by Mark Lyttleton. They aim to churn out a return of 6 to 8 per cent, year in, year out.”
Medium-risk investor: “I pick Invesco Perpetual High Income Fund, which is run by Neil Woodford and has an outstanding long-term track record. This large defensive fund is complemented by the much smaller, more aggressive J O Hambro UK Equity Income fund, managed by Clive Beagles.”
High-risk investor: “I choose Standard Life UK Equity Unconstrained Fund, where Ed Legget, the manager, is good at identifying stocks that are about to undergo change. My other choice is Schroder UK Alpha Plus, managed by Richard Buxton, which has a long track record of good performance. Mr Buxton holds a concentrated portfolio of about 30 stocks.”
James Norton, Evolve Financial Planning
“I am choosing the same two investments for all three types of investor. I am simply varying the percentage weightings to match the risk level. My first investment is an exchange-traded fund: iShares’ FTSE Gilts UK 0-5 years. I have chosen gilts as a low-risk investment and I have gone for the shorter end of the spectrum.
“The second investment is in the Vanguard UK Equity Index Fund. This tracks the UK stock market and has an extremely low total expense ratio (TER) of 0.15 per cent. This is about one-tenth of the annual charge levied by most actively managed funds, and most of them fail to outperform the index.”
Cautious investor: “My weightings are 75 per cent in the gilt ETF and 25 per cent in the Vanguard tracker fund.”
Medium-risk investor: “I would split the money 50/50 between the gilt and the equity tracker fund.”
High-risk investor: “Seventy-five per cent goes into the equity tracker and 25 per cent into the gilt.”
Dennis Hall, Yellowtail Financial Planning
Low-risk investor: “As core holdings I would choose the iShares FTSE 250 index fund and Invesco Perpetual High Income Fund. I would then add two bond holdings — M&G Index Linked Bond Fund and M&G Corporate Bond Fund.”
Medium-risk investor: “I would again go for the iShares FTSE 250 index fund and I would couple this with the JP Morgan Mid Cap Investment Trust and the Invesco Perpetual Income & Growth Trust.”
High-risk investor: “I would balance the steadiness of BlackRock UK Absolute Alpha Fund with the riskier Allianz Merchants Trust, carrying a high yield of 8 per cent.”
Case study: Ready to buy when the market dips
Andy Bedwell is one of the UK’s army of small private investors. Mr Bedwell, 40, is a business consultant from Haddenham, near Aylesbury, in Buckinghamshire, who enjoys a flutter on the stock market.
“I have been investing in stocks and shares for about 15 years, first through personal equity plans (Peps) and individual savings accounts (Isas) and later through direct purchase of shares using my stockbroker, the Share Centre.”
At the moment, about half of Mr Bedwell’s investment portfolio of £4,000 is in cash. He says: “I thought the market was starting to get overheated in the summer and a month ago I sold some of my shares, including Petrofac, the services group, and Kazakhmys, the mining company. I still hold Barclays and Man Group, the hedge fund manager.
“I bought several financials last year when they were taking a pounding, in the expectation that they would bounce back. That has worked quite well with Barclays, though I lost patience with Lloyds TSB.
“I am happy to hold some cash but am ready to start buying again when the market dips.”
Looking ahead: FTSE 100 predictions for the end 2010
4,700: Jeremy Batstone-Carr, Charles Stanley
5,000: Justin Urquhart Stewart, Seven Investment Management
5,000-5,500: Mike Lenhoff, Brewin Dolphin
5,500 Julian Chillingworth, Rathbones; Alec Letchfield, HSBC Global Asset Management
5,850 Paul Kavanagh, Killik & Co
Your Comments
Order By: