FF&P Identifies Hot Favourites, Likely Losers In 2013 Markets

Tom Burroughes

29 November 2012

Emerging market debt and equities, gold, US mortgage-backed securities and private equity are the most favoured asset classes for 2013 of Fleming Family & Partners, which oversees £3.7 billion of client money.

As more firms gear up to disclose their forecasts for the year ahead, FF&P’s chief investment officer Dan Briggs says the recent sharp market pull-back after an encouraging summer will give way to further continued shifts between ‘risk-on’ and ‘risk-off’ market phases in 2013, driven by news flow from Europe, China and the US.

Although company earnings will fall back from double-digit growth levels, and equity valuations are not at the depressed levels seen in 2008-9, valuations still look attractive in an historical context and when compared to bonds, the firm said.

Highlighting the favoured assets for 2013, Briggs gave the following views:

US Mortgage backed securities: "The US residential property market is now rebounding from oversold levels with the US government and the Federal Reserve committed to stimulating the US housing market to underpin a wealth effect. With employment trends likely to improve in 2013 and property values still trading at 75 per cent of cost, US residential-related property is an attractive area.”

Emerging market debt: “We anticipate an inexorable appreciation in emerging market currencies versus developed market currencies, given superior fundamentals. This is despite a historical propensity for emerging market assets to sell off in periods of higher volatility. We increasingly like Russia and Brazil,” he said.

“Emerging market equities have underperformed recently given concerns of a global hard landing and a flight to developed market equities. Selectively, we see good opportunities for Asian and Latin American equities to outperform, given superior growth potential and attractive valuations,” he said.

“Gold bullion remains our best hedge against currency debasement as governments implicitly ‘default’ on their obligations by supporting higher inflation. Gold has a long history of tracking prices,” Briggs said.

“Prices of high quality private equity funds stand at attractive valuations relative to stated conservative valuations, reflecting reduced liquidity and the poor market for IPOs,” he added.

As far as “losing strategies” are concerned, Briggs chose the following:

“Nominal developed market bonds are expensive, having appreciated excessively due to liquidity programmes and actuarial-driven, institutional purchasing. There are risks that yields may back up sharply if global activity improves,” he said.

“Regulated utility equities represent a potential income trap. Over-leveraged high yielding companies are susceptible to regulatory interference and windfall taxes,” Briggs continued.

“Fund of fund hedge fund models will struggle to perform well in the face of high fees and indifferent across-the-board performance for hedge fund strategies,” he said.

“High quality corporate bonds have become expensive relative to high quality income generating equities, with yields driven down by government yields,” Briggs said.

“Listed infrastructure vehicles have performed well but have become too expensive in relation to risks due to demand for safe and assured income,” he added.