What's in store in 2024?

This week I’m looking at the consensus view from 16 professional fund selector firms on what they think will do well – and what’s set to tumble in 2024. We also share refreshed data on sustainable funds, where we map your preferences to the latest performance and sustainability metrics, produced in partnership with global research giants Morningstar.

First to investment markets and a straight-talking summary of what’s going on. This week Investment Week published a survey which asked 16 investment selection teams what they like over the next 12 months.

If I condense this down, the consensus view is that UK shares, Japanese shares, long-dated government bonds, gold and renewable energy infrastructure will do well. And US shares, European shares and global high-yield bonds will not do so well.

Let’s unpack this

This week, we have seen 10-year US gilt yields fall to a touch over 4%. “Good God!” you cry, sarcastically, “Hold The Front Page, Holly!” Bear with, bear with. This matters. It impacts share markets and mortgages, so read on.

Gilts are money we lend to Governments. IOUs. When life is super boring and interest rates are low, the ‘yields’ are pretty low because leading to the US Government is not that risky. It’s all very safe and boring so we don’t make much from it. Tra la la. And when interest rates are high, Governments have to pay us more to persuade us to lend them money and make it appealing. So in 2023, yields have been high.

But hold up – over the last 6-7 weeks, the yield has fallen from around 5% to 4%. Looks deceptively small, but a 1% move on a 5% thing is a big old move. And when yields on bonds fall, the prices go up, which is whetting investor appetite.

What does this tell us? Financial markets are listening to all the Central Banks put on their stern faces and say “Higher rates for longer; we won’t be cutting any time soon; be sensible everyone; tsk tsk” – and they are basically saying “We don’t believe you. We think rates WILL come down sooner than you say, you miserable goose.”

All this suggests that fixed rates available on savings will fall (so do lock in any deals before they do), fixed rate mortgages should fall (a little) and interest rates could come down sooner than the Banks are saying.

The Magnificent Seven are scaring the City folk

Buoyed in part by this optimism about rate cuts, investors are returning to shares, including US shares. But look closer and most returns in the US are driven by the Magnificent Seven – big tech names such as Microsoft, Apple and Nvidia. Which gives professional fund pickers the heebie-jeebies because about 30% of the S&P 500 is in these stocks. Up from 21% a year ago. This makes it pretty risky and breaks the basic rule of diversification. Anyone with a broad mix of global funds, and US funds, should look on the factsheets at the top 10 holdings – and just see how much of your ISA or pension is in just 7 US tech stocks.

The consensus City view is that these stocks are priced too high and vulnerable to future falls.

What do the Pros like?

Heading back to what’s on the professionals’ wish lists, Japan is ticking boxes with investors – companies are cash rich, a weak yen makes their exports relatively cheap and also ongoing improvements in corporate governance give comfort.

But across the border in China, it’s a gloomier story. Flat consumer spending, real estate slumps and US-China spats are not helping things.

Closer to home and the industry is positive about the UK. This market has been unloved for SO long, that surely it will move from duckling to swan soon? (Although – warning – that’s a bit of broken record and people have been saying this for years so we know it will happen, we just don’t know when.) However, the FTSE is definitely cheap compared to global alternatives. Older investors who look for income will not be immune to its current charms, and funds like JO Hambro UK Equity Income are currently paying a yield of 6.2%, for example. That’s pretty punchy.

From Eco Warrior to Pure Returns

Renewable energy infrastructure is on professional selectors’ picks. Whatever your personal stance, it’s hard to ignore the global wall of money which is activated by energy transition. We’ve worked with consumers to create seven types of investor, taking into account different stances on profit versus purpose, the environment versus broader societal issues. Whether you think it’s mumbo jumbo or critical, our quiz will identify which type of Sustainable Saver you are – and showcase a handful of funds which are mapped to your priorities, looking at different metrics including performance, Morningstar ratings and adherence to UN targets and goals.

Phew! That’s it for this week. It’s Christmas decoration time in our house this week – time to drag out the reindeer, the very tatty Nativity set which now has a Schleich killer whale relocated in it which I love, and to try and force the kids off screens for 15 minutes to stick an angel on the tree!

Have a lovely weekend everyone. On a final note I’m doing a money advent series on Instagram so if you fancy some additional bite-sized tips and ideas from the dog and I, follow me @boringmoneyholly.

Holly

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