Portfolio Positioning for the coming year

A new year brings new challenges, none greater than where to invest your hard earned money over the coming months. We closed off 2013 with an excellent year to be invested in most asset classes. By far the best performer were equities with considerable gains in the US, Europe and Japan as more capital flowed into the asset class. Yields continued to grind tighter with High Yield bonds performing well on the back of a global hunt for yield. Gold investors were left shunned by the hype in the markets as the metal experienced its first yearly decline in many years as more optimism about the global outlook of the economy saw demand for the ‘safe heaven’ asset wane.

So where does this leave us heading into 2014?

Equities are expected to continue to perform well throughout 2014 as confidence rises, bond markets are at all-time highs leaving opportunistic value and economies dust the remnants of the financial crisis off their back. I’m bullish on Europe, expecting the peripheral countries, namely Italy, Spain and Portugal to perform well. My preference would be to target blue chip companies when picking stocks in Europe as these could provide cushioning should expectations not materialise. US markets are expected to continue to perform well albeit I believe we are in for a bumpier ride than 2013. Mixed economic data will provide opportunistic purchases; therefore try target great companies at cheap prices on events.

My outlook for bonds is more subdued than on equities. I believe that there is limited value in the broader investment grade and high yield market; with opportunistic buying on overplayed negative news my only buy-in. My only play would be a convincing high yield credit purchased to maturity. Interest rates are expected to rise over the coming years, although not imminently. The markets will slowly pre-empt this and I expect long duration bonds to start to bear of the brunt of these expectations changes towards the second half of 2014. In particular reference to Maltese government bonds, I believe the longer dated paper is grossly over-priced, yielding just over 4% for 14 year paper and expect them to hit significantly within 18 months. I’d recommend taking profits. My view therefore is underweight bonds and underweight duration.

Gold is expected to continue to weaken slightly throughout 2014, expectations are around the $1,100- $1,150 mark.