In a couple of weeks the Trustnet editorial team will reveal our fund picks for the year ahead. Last year we took big swings and, with a few weeks to go until the end of the year, our selections from the end of 2022 have a long way to go if we are to get back to anywhere near a reasonable return.
Looking forward on a one-year view is never easy and, more often than not, it is ill-advised. We do this every year as an exercise, although most of our choices are with a long-term mindset in place.
This year I am struggling to think of something to get excited about. According to this morning’s article, core bonds should make a decent return, with experts at Insight Investment suggesting it would take a 100 basis point interest rate hike for fixed income to make a loss next year.
That is a pretty safe bet (as few people are anticipating any hikes next year at all, with cuts more commonly forecast) but not one that will ultimately beat my colleagues’ fund picks over the next 12 months.
Perhaps the contrarian way is best. Former reporter Tom Aylott chose China last year in what was an abject disaster of a fund pick. But the MSCI China has now dropped by double digits in each of the past three calendar years (2021-2023) – barring a miraculous last few weeks of the year. It is a boom or bust proposition, but surely the market must come back at some point?
Speaking of contrarian, perhaps commodities could be the way to go. Earlier this year experts were calling for a commodities ‘supercycle’, with much optimism around the price of raw materials that rocketed during the Covid years.
After two strong years making double-digit gains (2021-2022), this year the IA Commodity/Natural Resources sectors has dropped 7.5% – the second worst performance behind the IA China/Greater China peer group.
Healthcare funds and UK smaller companies portfolios have also dropped this year, the latter having also plummeted in 2022.
Earlier this week Ken Wotton, manager of the WS Gresham House UK Smaller Companies fund, made a compelling case for the sector, noting that small-caps tend to recover faster than their larger counterparts following a recession – something that is broadly expected at some point next year.
But they never truly recovered from the mini-Budget fiasco last year, so could also hold up surprisingly well during a recession, with valuations already pricing in a worse economic outlook than their large-cap cousins.
The converse option is to stick with the winners for another year. If this is the case, technology is the obvious choice. The IA Technology/Technology Innovation sector topped the charts in 2023, having been the second worst performer of all Investment Association sectors in 2022.
Last year was clearly an outlier. Technology has featured in the top 10 best performing IA sectors every year for the past decade except in 2022. This consistency suggests investors should no longer be surprised when tech comes out near the top each year. Is this the time I finally suggest a tech fund?
There is much to consider before making the decision. Of course there is no real money involved (just bragging rights) and I am keen to stress that this is an exercise and far from a recommendation.
But I have won in two of my three years back at Trustnet (this year looks like it will be my first without the aforementioned bragging rights) and I want to get the top spot back. Tough choices lie ahead.