Markets have been turbulent this year and much talk has focused on potential risks.
A smattering of uncertainties to consider include the ramifications of the Brexit vote and whether the UK will enter recession. Nor does anyone know how extraordinary monetary policy in Europe will pan out, or the ultimate impact there’ll be from the trillions of negative-yielding bonds.
The climate is unusual, but savers still have money to invest, and fund managers are still doing their jobs. We asked top managers to share the best opportunities in their sectors today.
The banking sector seems to be universally derided, subject to regulatory scrutiny, frequent fines and consumers’ scorn. But some are sharpening up their act and are worth investing in, says James Thomson, manager of the Rathbone Global Opportunities fund.
Read more: UK bank shares suspended
Thomson has bought shares in two high-end banks which offer customers “a return to old fashioned banking”, he says. They are San Francisco-based First Republic Bank and Scandinavian giant Handelsbanken.
“I hate the banking sector but I’ve found two that are running up the escalator, doing something different,” Thomson says. First Republic bills itself as the “Ritz-Carlton” of banking and has higher customer satisfaction than Amazon or Apple, he says. Forbes ranks it among the top seven publicly traded banks in the world.
Similarly, Handelsbanken is popular with wealthier customers as it has an individual, branch-led service. It operates in 25 countries and is swiftly growing in the UK, where it’s up to 200 branches.
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Another bank popular with professional investors is Indonesia’s Bank Rakyat. It’s one of the largest in the country and has made its name by micro-lending, offering loans as small as $5. “It gives credit to people who couldn’t otherwise get credit. It has a fantastic network of branches and people are so grateful they have finally been able to get a loan that they are very loyal to the company,” explains Mick Dillon of the Brown Advisory Global Leaders fund
Ways to invest: Either through individual shares, or funds with investments in these banks, including the Rathbone Global Opportunities fund, the Baillie Gifford American fund or the Brown Advisory Global Leaders fund.
UK property is a controversial area since a number of funds investing in commercial buildings were forced to suspend operations following the Brexit referendum.
But residential property in Germany is subject to totally different dynamics and is offering investors attractive yields and potential for capital growth, says Alex Ross, manager of the Premier Pan European Property fund. Germany’s well-known for its rent controls and tenant protections, aspects of the society which, alongside an aversion to debt, mean many Germans are happy to be lifelong renters. And historically property prices haven’t been rising strongly. But that’s slowly changing and prices are starting to creep up.
“Property has been uneconomic to build, you can’t make money as a developer. It’s a bit like what is happening in London. Developers are building luxury all over Mayfair and Vauxhall but that’s not what workers need,” says Ross.
Read more: Sales of London new build houses plunge
“Rents are growing because there is such a lack of supply.” Only 40 per cent of Germans own their own home but that mindset is slowly changing, which means greater demand for property, he adds. Investors can also pick up an average yield of 5 per cent.
Ways to invest: Frequently tipped are the F&C Global Real Estate Securities fund, which has 22 per cent invested in Germany, and the Premier Pan European Property fund.
This far eastern state is home to some of the most important companies in the world – those that make microchips and other parts for gadgets which our tech-heavy society relies on.
“Taiwan is neither here nor there in terms of economic growth but its companies are part of the new world, such as the internet of things, smart devices, cloud computing and super-fast chips,” says Gary Greenberg, head of emerging markets at Hermes Investment Management. “It’s an opportunity that the rest of the market doesn’t seem to be recognising much.”
Read more: "Made in Taiwan" is the new catchphrase
One of the leading local tech companies is Taiwan Semiconductor Manufacturing Company – if you have a smartphone, chances are it uses a semiconductor in a chip from this firm. “In that industry it’s supreme,” says Dillon. “They are the best semiconductor company on the planet… people rave about them.”
Ways to invest: Through the Hermes Global Emerging Markets fund or the Schroder Asia Pacific fund, both of which have investments in Taiwan.
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Given the range of uncertainties troubling markets, many investors are choosing to keep more cash, or avoid trading until there’s greater clarity. There’s an argument to say the best idea right now is to do nothing.
“My feeling is one of caution and trading quite carefully… I don’t think the opportunities out there are very compelling,” says Hugh Yarrow, manager of the Evenlode Income fund.
Investors with this outlook tend to focus on companies with no debt, are carving out a niche or have well-loved brands, pay dividends and those that will grow slowly over a long timescale.
Ways to invest: Funds which tend to conform to this philosophy include the CF Woodford Equity Income fund, Invesco UK Equity Income fund and the Evenlode Income fund.