10 Investment Opportunities for 2024 – Forbes Advisor UK

Last year’s late gains brought some recognition to stock market returns. However, geopolitical and macroeconomic uncertainties could hinder portfolio performance in 2024.

We’ve analyzed 10 topics in detail to help you decide what investment strategy to adopt in the coming months.

1 – Invest when interest rates are low

The past two years have seen the most aggressive rate hike cycle in history. But if interest rates are likely to fall in the coming months, as many expect, what are the implications for investors?

“History teaches us that market performance is often strongest early in a rate cut cycle, so investors should be prepared to participate in any market rally,” said Lindsay James, investment strategist at Quilter Investors. We need to make sure it’s done.”

Declining interest rates can affect businesses in a number of ways. For example, the technology sector could benefit from lower borrowing costs as high interest rates erode the value of the expected future earnings of these “growth” companies.

Lower interest rates could also benefit home builders. In 2023, the real estate market slumped as mortgage repayments increased due to increased borrowing costs.

In contrast, banks may suffer because they do better when interest rates are high and can increase the margin between what they charge borrowers and what they pay depositors.

2 – High inflation investment options

The UK’s annual inflation rate will rise to up to 4% in December 2023, reversing this year’s general downward trend and reducing the likelihood of immediate cuts in borrowing costs.

Lindsey James of Quilter Investors said:Price growth will continue to slow, but may fall short of Gold’s 2% [official] This is my goal for this year. ”

When inflation is high, some companies are more appealing to investors than others. Jason Holland, Managing Director of BestInvest, said: “Choose companies that can pass inflationary cost increases onto customers without sacrificing margins and are less susceptible to price cuts.

“Companies with unique intellectual property rights and high recurring contract revenues fit this criteria.”

3 – Investing during recessions

The UK economy has grown slightly faster than expected in November last year, but the risk of slipping into a mild recession (consecutive quarters of negative growth) remains.

Even in a recession, investors have options to strengthen their portfolios. Diversifying across different assets such as stocks, bonds, real estate, and cash, as well as different equity sectors, can help smooth out returns if a particular asset class or sector underperforms.

Companies in so-called “defensive” sectors, which include consumer staples such as food, beverages, personal care products, utilities and financial services, tend to be less vulnerable to demand declines during recessions.

More resilient parts of the market also include “non-cyclical” businesses such as defense and health care, which tend to benefit from government spending.

4 – Utilization of green issues

While investments with strong sustainability ratings rose in popularity during the pandemic, many of those funds fell out of favor, and the gains they enjoyed from 2020 to 2022 tended to collapse last year.

But Rob Bergeman, senior investment manager at RBC Brewin Dolphin, believes a resurgence could be in the works. “The driving force behind these investments remains, and the Schroders Global Energy Transition Fund could be one way to carry this theme in 2024.”

“The company has good geographic reach and invests in a variety of companies related to the energy transition, from renewable technologies to electric vehicles and chemicals.

“Another option is JLEN Environmental Assets Group, a FTSE 250 exchange-traded fund focused on environmental infrastructure. Its portfolio includes a range of assets you might expect, including wind and solar infrastructure. It includes, but also includes waste and wastewater treatment, anaerobic digestion, and battery storage facilities.”

5 – Impact of US elections on investment

Russ Mold of AJ Bell said: “A study of ballots since 1945 shows that the U.S. stock market traditionally suffers a mild nervous attack in the final year of a presidential term. , because this year is on average the weakest year in the index as a benchmark.

“That being said, the final year of a Democratic presidential term averaged double-digit capital returns.”

One option available to investors who want to gain exposure to various U.S. stock market indexes is through relatively low-cost index funds. Learn more about.

BestInvest’s Jason Hollands said: “A second Trump administration will have quite significant consequences. Tax cuts implemented during Trump’s first term and set to expire in 2025 could be extended. “There is a possibility that the trade war will return or the trade war will break up.” Much of the current administration’s green agenda falls into this category. ”

6 – Impact of UK elections on investment

An election is looming in the UK, likely in late autumn or early winter this year. AJ Bell analyzed UK general election statistics since 1962 and found that the FTSE All-Share Index rose by an average of 12.8% in the 12 months following a general election that resulted in a change of government.

In contrast, when the current ruling party remained in power, the index’s average return was just 0.9%.

The numbers also suggest that market performance improves throughout the period in which a new government is elected. The average return over the entire period for newly inaugurated governments was 47.9%, compared to 30% for returned governments.

One option available to investors who wish to gain exposure to the various indices of the UK stock market is through relatively low-cost index funds. Learn more about.

7 – Technology companies as an investment option

Artificial intelligence is investors’ favorite theme in 2023, with a handful of mega-tech stocks, the Magnificent Seven, playing a major role in the AI ​​story (through applications, the internet, software, and semiconductor chips). We saw stock prices go up. result.

Rob Bergeman of RBC Brewin Dolphin said investors who want exposure to the tech sector but want to diversify their holdings a little more widely could consider a small number of specialized funds. There is. Global scale.

“The trust includes major US companies such as Apple, Microsoft and Meta among its holdings, but also provides exposure to smaller companies and companies in other parts of the world, such as Taiwan Semiconductor Manufacturing Company. I am.

“Alternatives include Allianz Technology Trust and BlackRock’s Next Generation Technology Fund. The former includes many of the same names as Polar Capital Trust, while the latter includes companies such as Lattice Semiconductor. Nvidia and Tesla are among its major holdings, along with some less familiar names.

8 – Investing in Japan

After years of underperformance, Japan and Tokyo stock markets are a good place for investors in 2023, and there are signs that momentum could continue this year.

Not only are Japanese companies sitting on an estimated £700bn of cash, which could be returned to shareholders or recycled into the business, but Japanese regulators have introduced corporate governance reforms to There is. These should alleviate concerns foreign investors have about putting money into foreign jurisdictions where business practices and cultures are difficult to understand.

Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management, said, “The Japanese stock market in 2024 will be supported by economic growth supported by moderate inflation and capital efficiency improvement measures implemented by the government and stock exchanges. , it should be solid.”

9 – Investing in emerging markets

Emerging markets are countries that are trying to gain a more significant foothold in the global economy.

The outlook for the sector in 2024 is positive, according to Franklin Templeton’s emerging market equities team. Factors include the possibility that U.S. interest rates have peaked, a rebound in revenue growth, and the economic outlook for China, which appears to be over the worst. ”

Franklin Templeton said the reforms “enabled India and Mexico to attract foreign investment and increase capital spending,” while “stock prices in South Korea and Taiwan appear likely to recover as technology cycles improve.” ” points out. This will contribute to earnings, with both countries expected to lead emerging market earnings growth this year. ”

10 – Investing in times of geopolitical instability

With Russia’s invasion of Ukraine and tensions in the Middle East, as well as the rivalry between the great powers of the United States and China, investors are facing a new reality of geopolitical risk.

One tool in the arsenal for investors looking to combat geopolitical volatility is diversification. Diversification is an investment strategy used to manage risk and smooth profits. This involves diversifying your investments across different asset classes, different sectors, and geographic regions.

Learn more about the investment equivalent of not putting all your eggs in one basket.