Investment company managers on what's in store for 2023.
Investment company managers have tipped Energy to be the top performing sector in 2023, followed by Information Technology and Healthcare, according to the annual poll conducted by the Association of Investment Companies (AIC). The poll was carried out with AIC member investment company managers between 14 and 30 November 2022.
On a 12-month view, over a quarter of respondents (28%) favour Energy, with 21% preferring Information Technology and 11% Healthcare. This view is mirrored in respondents’ outlook for the next five years, with Energy (33%), Information Technology (23%) and Healthcare (11%) again predicted to perform best.
A quarter of managers (25%) tip the UK as the best-performing region in 2023, while almost a fifth (19%) choose the US. There is also support for China and Emerging Markets (both at 10%).
On a five-year view, the UK is seen as offering the most attractive opportunity (25%), closely followed by Europe (18%) and the US and Emerging Markets each receiving 15% of the votes.
Mid-cap equities are predicted to be the best performing asset of 2023 (29%), with large-cap equities following (12%) and renewable energy infrastructure and bonds both at 11%.
Investment company managers’ greatest fear is slowing corporate earnings (22%), followed by a recession (16%), inflation (11%) and rising interest rates (10%).
Most managers (61%) think inflation has already peaked, though a quarter (25%) think it will rise further. Just over a tenth (11%) did not offer an opinion either way.
However, investment company managers clearly believe the Bank of England has a job on its hands to get inflation back to its 2% target. Not one respondent thinks the target will be reached in 2023. Just over a fifth (22%) think the target could be reached in 2024, 17% say 2025, but over a third (36%) think we will be waiting till beyond 2025 to see 2% inflation again.
Over two fifths (42%) of managers believe interest rates will reach between 3% and 4% by the end of 2023, whereas 28% expect them to rise to 4-5%. This compares to almost a fifth (19%) of managers who think they will fall to 2-3% by the end of 2023. Only 3% of managers think interest rates will reach 6-7%, and the same number (3%) believe they will fall to 1-2% by the end of next year.
A quarter (25%) of managers think the prospect of an end to the war in Ukraine is a cause for optimism. Others remain positive about the opportunity in undervalued companies (19%) and the possibility of the relaxation of China’s zero Covid policy (17%).
The majority of investment company managers (56%) think global stock markets will rise in 2023 compared to 22% who think they won’t rise and 22% who don’t know. When asked where they think the FTSE 100 will close at the end of 2023, 28% of investment company managers say it will close between 7,500 and 8,000, whereas a quarter (25%) think it will close between 7,000 and 7,500. Almost a fifth of managers (19%) are more optimistic and think it will reach somewhere between 8,000 and 8,500.
Annabel Brodie-Smith, Communications Director at the Association of Investment Companies (AIC), said: “With the war in Ukraine continuing, it’s understandable that investment company managers have tipped energy to be the best performing sector of 2023 but predicting information technology to make a comeback is more unexpected.
“The UK is expected to be the most attractive region in 2023 and over the next five years. Of course, there are a number of significant concerns including the impact of a recession on the economy and rising interest rates, but most managers think inflation has peaked and global stock markets will rise next year.
“It’s interesting to hear managers’ views but no-one has a crystal ball. Investors should focus on investing for the long term by creating a balanced portfolio which meets their needs and, if in doubt, consult a financial adviser.”
Bruce Stout, Manager of Murray International, said: “The so-called developed world remains on course to enter recessionary conditions in 2023, the magnitude and duration of which remain unquantifiable at the present time. As wage inflation continues to escalate and growth slows, the corporate profits outlook for many businesses looks very precarious indeed. Within Asia and the developing world, where debt burdens remain manageable and scope for interest rate declines prevail, we believe many businesses should experience a tailwind of improving macro-economic conditions enhanced by longer-term, structural positives of favourable demographics and rising purchasing power. We will continue to follow a fully diversified, quality focused approach.”Simon Gergel, Manager of The Merchants Trust, said: “The UK equity market is lowly valued and there is a wide dispersion of share valuations within the market. This is an excellent environment for stock picking, as we are able to identify many strong businesses that appear to be mispriced, offering attractive dividend yields and the prospect of medium-term capital growth.”
Gervais Williams, Manager of Diverse Income Trust, said: “With inflation, equity markets have flipped from capital abundance to capital scarcity. Although inflationary pressures may moderate in 2023, investors will discover that the new challenges are here to stay. Companies generating cash surpluses will have the advantage, especially those operating in capital intensive industries like much of the FTSE 100. In short, in 2023 the UK stock market could surprise on the upside.”
Ben Ritchie and Rebecca Maclean, Co-Managers of Dunedin Income Growth, said: “Despite much commentary on the ‘death of ESG’, environmental, regulatory and social pressures on companies and investors are continuing to intensify. After a year of chasing energy, commodities, tobacco and defence stocks, we believe 2023 will see investors refocus on the importance of sustainability in generating long-term returns.”
Read more managers' comments in the longer version of this article on the AIC website.
“Within Asia and the developing world, where debt burdens remain manageable and scope for interest rate declines prevail, we believe many businesses should experience a tailwind of improving macro-economic conditions enhanced by longer-term, structural positives of favourable demographics and rising purchasing power. We will continue to follow a fully diversified, quality focused approach.”
