This year, I’ll be looking mostly at “three I’s”: Inflation, Innovation and Impact – the first two will frame investors’ day-to-day thinking and the third will become increasingly interesting to those taking a long term view.
Inflation: We’ve been living with rising inflation since around the time of the Brexit vote. “Brexflation” looks set to stay, despite an increase in interest rates (see more on rates below), as the drivers behind it are the weaker Pound and the rising cost of imports. So beating inflation in what is still a low interest rate environment will remain challenging, particularly for more risk averse investors who prefer to keep a high proportion in cash and property. The trend of moving up the risk curve to get a return above inflation is likely to continue.
Innovation: It’s a buzz word for Chancellors in Budget speeches, but this year, firms on the forefront of fintech, AI and big data, helped along by government policy, will be shaping the world we live in and also the outlook for investors. The recent performance of funds with a technology focus, such as Henderson Global Technology and Axa Framlington Global Technology, which have returned more than 30 per cent in the last year and as much as 180 per cent in the last five years, demonstrates the potential. With a global race between countries to be world leaders in these emerging fields, rapid innovation is likely to continue to drive returns for investors in the next 12 months. However, with so much money being ploughed into the sector, and with so many companies in the field at an early stage, the risks of some big losses are relatively high, too.
Impact: Impact investing, which involves investing in themes that have a positive impact on the environment and society, is enjoying a rise in popularity. Assets under management in this area in the UK rose by 11 per cent in the six months to November, according to 3D Investing, the research firm, boosted by the growth of ‘megatrends’, such as renewable energy and electric vehicles. Falling costs of new technology, together with global regulations on carbon emissions and climate policies will support this shift towards making a profit and a difference.
2018 end of year FTSE 100 prediction: 7,800
Recent gains will slow as monetary policy tightens - would expect FTSE 100 to reach 7,800 by second half then not rise significantly beyond that.
FTSE 100 Stock prediction: Berkeley Group,the housebuilder, is difficult to argue against and it is set to do well from the Government’s pledge to build 300,000 new homes a year.
While the potential for rising interest rates in 2018 may curb the enthusiasm of some homebuyers, Berkeley Group’s strategy of buying well-located sites and building quality homes that people want to live in, sustainably, helps the company maintain its steady, long-term performance. It takes its responsibility to the environment and society seriously, too.
What does Becky think you should invest in for 2018?
My recommendation for 2018 would be the WHEB Sustainability Fund. It invests in the environmental, global “mega trend” stocks, which are powering energy efficiency, electric vehicles, components for renewable energy and tech advances in resource management. It’s a small company, but totally unique in the way it reports – it’s as interested in the carbon dioxide emissions (and there’s a calculator on the site to let you work out how much carbon your investment has saved) that it reduces as returns and recognises that increasingly, the two go hand in hand. WHEB is at the vanguard of the trend towards impact investing and has an expert term.