No-one knows for certain what will happen over the next 12 months, but it’s often worth seeing what the experts are up to.
So we asked a string of financial advisers, market analysts and stock pickers to highlight some potential investments that are worth considering.
The past 12 months have been strong for equity markets with decent stability for the first time since the global financial crisis, according to Adrian Lowcock, investment director at Architas.
“The global economy has been in fairly good health and we have seen a period of synchronised global growth,” he said.
He expects global growth – and corporate earnings – to continue rising in 2018, but is urging people to rein in their expectations.
“Equity markets are unlikely to have a repeat of 2017,” he said.
“Investors need to look towards areas which offer the best combination of value and growth.”
Talks surrounding Britain’s forthcoming departure from the European Union are likely to affect the UK stock market, according to Steve Davies, head of strategy and UK growth at Jupiter.
He argued it’s looking increasingly likely that a transition agreement will be secured early in 2018, which will have a positive impact.
“The pound should rally, economic growth should pick up as inflation subsides (thus enhancing consumers’ spending power) and business confidence should improve,” he said.
Of course, this also means the FTSE 100 may struggle to make progress, given the fact many of its constituents are global companies whose earnings would be hit by a rise in sterling.
So, what will happen if talks don’t progress as expected? Davies suggests this would mean an increased probability of a hard Brexit.
“Theresa May’s Government could fall apart, potentially precipitating a new General Election and the possibility of Jeremy Corbyn becoming Prime Minister, albeit perhaps with a slim majority or in coalition with others,” he added.
Interesting trends for 2018
A hot topic is the rise of e-commerce and its potential influence on the spending behaviours of consumers, according to Darius McDermott, managing director of Chelsea Financial Services.
“The market leaders are Amazon in the West and Tencent in China – and one fund manager that owns both stocks is James Thomson of the Rathbone Global Opportunities fund,” he said.
McDermott said Tencent was finding ways to monetise their different business streams in ways that developed companies struggle to do, while Amazon continues to awe the marketplace.
“More than 50% of online sales over Thanksgiving weekend were via Amazon and it’s now going into the food delivery space with Amazon Fresh,” he added.
Artificial intelligence could be another big trend for 2018.
“Some have said that AI will impact our lives to the same extent as the internet,” said McDermott.
However, he foresees more uncertainty surrounding the world of cryptocurrencies and pointed out that almost every newspaper headline contains the word ‘Bitcoin’ these days.
“Having risen more than 1,700% this year, those contemplating buying Bitcoin today could be going in at the top,” he said.
“If it’s a bubble and it bursts, then the losses could be catastrophic.”
Performance was strong across a range of sectors during 2017, with European and Japanese smaller companies leading the way on the back of favourable election results.
Overseas sectors have also benefitted from economic growth and sterling’s weakness, according to Annabel Brodie-Smith, communications director at the Association of Investment Companies.
“It’s interesting to look at the short-term winners but investors need to have a balanced portfolio and a long-term view,” she said.
“One year’s underperformers can be the next year’s star performers, showing how important it is not to react to short-term market movements.”
David Coombs, manager of the Rathbone Multi-Asset Portfolio funds, remains optimistic about equities as he believes the chances of a recession in the United States or China is remote.
“Any sign of potential recession in these two countries would lead us to reassess our strategy because such a downturn would drag the rest of the globe into recession,” he said.
Although he’s been building up significant cash holdings, this has come from selling Government bonds and a smaller position in commercial property, rather than equities.
“Holding this cash gives us the flexibility to take advantage of a correction – in bonds, equities or otherwise,” he added.
Ben Yearsley, director of Shore Financial Planning, likes Japan, pointing out that it has recorded the best run of continued economic growth since 2001.
“Japan has been one of my favoured areas of investment for many years,” he said. “Despite the good run in the markets, it remains one of the cheapest developed markets.”
He pointed out other markets such as the US have reached all-time highs, while Japan is only around half of its 1989 peak.
“I’m still a buyer of Japanese equities,” he added.
Legal & General
The company, which provides life insurance and retirement services to more than 10 million people, appears to offer the prospect of a sizeable dividend and future growth.
It has benefitted from an ageing population and an ability to latch on to wider trends, according to Nicholas Hyett, an equity analyst at Hargreaves Lansdown.
“Recurring revenues should make profits fairly predictable, helping to underpin the dividend,” he said.
“The prospective yield is 6%.”
The consumer goods giant is implementing a new strategy that aims to improve sales growth, lower costs and increase returns to shareholders through raised dividends.
Ian Forrest, investment research analyst at The Share Centre, expects it to spend on acquisitions next year to target further growth in emerging areas.
“Unilever appeals to lower risk investors as sales of everyday, essential household goods don’t tend to be significantly affected by changes in background economic circumstances,” he said.
High-profile cyber-attacks have illustrated the potential danger of not investing in security – and Sophos stands to benefit from companies committing money to this area.
The firm, whose software protects small and medium-sized businesses, has more than 100m users in 150 countries, according to George Salmon, an equity analyst at Hargreaves Lansdown,
“Contracts run for up to five years, retention rates are impressive, and last year Sophos generated an average of 29% more business from contracts up for renewal,” he said.
The bellwether for the advertising industry, which is often regarded as a global economic barometer, could benefit from big sporting events in 2018, such as the FIFA World Cup.
Ian Forrest at The Share Centre suggests the core attraction of the group is the steady progress it is making in emerging markets.
“When you add these factors to improving dividends, a high prospective dividend yield of 4.9% and a steady flow of acquisitions, we believe the group is worth drip-feeding into,” he said.
The owner of high profile properties, such as prime central London offices and shopping centres in major cities, is a Real Estate Investment Trust, or REIT.
This means it’s required to pay out 90% of rental profits as dividends, which can make for an attractive income, according to Nicholas Hyett at Hargreaves Lansdown.
“Those in search of an income, and prepared to weather Brexit-induced volatility, might wish to consider British Land,” he said.
“The company clearly thinks its shares are good value, reinvesting proceeds from recent sales in a £300 million share buyback.”
This AIM-listed stock, whose products enable broadband providers to offer television and other services, could be a possibility for higher risk investors.
That is the opinion of The Share Centre’s Ian Forrest, who suggested investors may want to recognise the 3.8% prospective dividend yield.
“Good cash generation provides options for further growth in 2018 whether that’s through investment in the business or acquisitions,” he said.