Accountancy and financial advice specialist, Crowe Horwath, has urged investors to maintain a long-term approach to their investment portfolios and avoid pushing out of defensive assets in pursuit of stronger returns.
Released today, the Crowe Horwath 2014 Ten Best Investment Ideas Half Year Progress Report provides an update on 10 key themes and trends identified at the start of the year by Crowe Horwath’s financial advisors, investment analysts and economists, to help investors make sense of and take advantage of these trends.
Commenting on the report, Crowe Horwath Head of Research Jeremy McPhail said the sustained low interest rate environment was fuelling investors’ appetite for investments offering higher returns.
“It’s important to remember that defensive assets form an invaluable component of any well-balanced investment portfolio and investors should ensure these assets are bedded-down before exploring riskier investments. Investors should also watch out for innovative investments that promote high yields with sustainable growth opportunities and focus on absolute returns rather than relative returns.”
Mr McPhail said that change remained the only constant and investors should remember that planning and securing a comfortable financial future is now more important than ever.
“The one constant for investors is change – social, political, technological and financial, and measures such as those outlined in this year’s Federal Budget, remind us that securing a financial future is more important than ever.
“Over the course of 2014 so far, there has been a high level of geopolitical tension plus domestically we’ve had a national review into the financial system and financial planning scandals that have caused investors to question who they can trust for genuine financial advice. There are a lot of moving parts for investors to digest,” he sa.
“It’s certainly making for an interesting investment environment but what we are telling clients is try and distance yourself from that noise and focus on what you can control.”
While investors shouldn’t disregard events such as the current international tensions in various parts of the world, Mr McPhail said it was important to recognise that there are always some negatives and in most cases, investors with a portfolio of quality investments constructed around their long-term goals will be well placed to ride out any volatility.
“There has been plenty of uncertainty over the past 12 months but equity markets have still had another strong year, with returns of over 5% from the 200 largest domestic listed companies and over 8% including income.”
Key opportunities for investors
Nominated as a key theme for investment opportunity in the 2014 report is the acceleration of and rapid response to technology. According to the report, companies investing in infotainment and online shopping are worth investors’ attention, while cloud computing and companies spending on R&D and displaying high levels of productivity and competitiveness are also highlighted as worthy of consideration.
Growth in China and other emerging markets also continue to represent strong opportunities, according to the paper.
“Growth is continuing in China but as we have pointed out for some time now, that growth is changing to become much more focused on consumption. Consumers in China and India are hungry for an authentic brand experience, either at home or abroad and companies tapping into this, such as those seeking to acquire Treasury Wines, partly for their coveted Penfold’s brand and LVMH, which purchased half of Australia’s RM Williams business in 2013, are worth investors’ attention,” said Mr McPhail.
Other investment opportunities identified in this year’s paper include Australia’s travel industry, which is likely to benefit from the changing demographic shift as baby boomers retire and travel more, as well as growing inbound tourism from emerging nations.
“The pick-up in overseas travel by Chinese and Indian nationals is a positive for companies such as Westfield and Sydney Airport, and we continue to favour exposure to these companies as they look to benefit from these trends.”
Crowe Horwath’s top ten ideas for 2014:
1. Focus on your goals, not the Jones’s – Consider your personal goals and needs when setting your investments
2. Change – The only real constant – Baby boomers approaching retirement are changing where consumption is occurring
3. The innovators – Innovation is not just good for consumers but it is producing businesses that are more efficient and producing tangible shareholder value
4. Servicing the demographics – Again! – With a retiring population, aged care facilities demand will outstrip supply
5. The new political regime – Withbusinesses holding back spending due to the 2013 Federal Election, cashed up companies are likely to be looking at mergers and acquisitions in 2014
6. Urbanisation and the growth of the middle class – Urban population is now greater than rural globally and will lead to different consumer spending patterns
7. Where to invest offshore? – The outlook for global economies is mixed but will mainly be driven by the ongoing recovery in the US market
8. Yield does not equal income – Don’t fall into the ‘yield trap’ but look for quality stocks with both rising dividends and share prices
9. Infrastructure and property – the new annuities – Cash is returning less than inflation so look to mature property and infrastructure for income streams
10. What to do with the banks? – If you own for income, they still provide and attractive yield but they appear fully priced for growth
