Investment Outlook -Whats on the Horizon for 2014?

Messages on November 22nd, 2013 No Comments
In this section we look at the House view of one of the leading Fund Managers operating in Ireland and importantly, what’s their current view on the markets.

Government bonds

US Treasuries


QE tapering going into Janet Yellen’s term as chair of the Federal Reserve (Fed) will put pressure on bond yields, although the Fed will act to prevent a rapid escalation. The fiscal debate adds to market uncertainty.

European Bonds


A moderate economic recovery with very low inflation provides support for bond yields, while peripheral spreads tighten as investors look for yield opportunities.

UK Gilts


UK gilts are increasingly vulnerable to the pick-up in economic growth and valuations are expensive. Manageable inflation pressures and central bank actions can anchor rising bond yields.

Japanese Bonds


The inflation outlook is deteriorating as the government aims for reflation, although the Bank of Japan bond-buying programme should prevent yields rising too significantly.

Global Inflation-Linked Debt


Valuations in individual countries warrant careful examination; the asset class is underpinned by investor worries about future inflation triggered by easy monetary policies.

Global Emerging Market Debt


Dollar-denominated bonds are Heavy as spreads show better value, while local currency bonds are Neutral as careful examination is required of individual currency and spread factors.

Corporate bonds

Investment Grade Debt


Attractions such as positive corporate cashflows are increasingly priced in, while upward pressures from government bond markets will periodically affect total returns.

High Yield Debt


Although spreads have come in moderately, the outlook for bond defaults remains supportive. Yields are still relatively attractive as long as the outlook for corporate earnings remains positive.


US Equities


Underlying fundamentals in terms of consumer spending, housing and business confidence are improving, offset by such headwinds as fiscal tightening and higher borrowing costs.

European Equities


Valuations are supportive and corporate competitiveness improving, but fiscal programmes and structural reforms remain constraints while the ECB has not managed to improve credit availability in many sectors.

Japanese Equities


The government is pushing ahead with major monetary and fiscal policy changes, as well as structural reforms; corporate earnings should particularly benefit from a more competitive currency.

UK Equities


The improvement in both the domestic economy and overseas order books is feeding through into stronger earnings growth for a wider range of companies.

Developed Asian Equities


Slower commodity demand from key economies such as China still affects the wider region; currency strength has hampered economic rebalancing in some countries.

Emerging Market Equities


Performance is increasingly divergent; while some countries benefit from strong domestic fundamentals, others are under pressure from current account deficits and tighter monetary policy required to stabilise depreciating exchange rates.

Real estate



The weak growth environment is expected to impact prices in the near-term but yields remain attractive compared to other assets, suggesting returns above cash over a three-year holding period.



The market remains polarised with Northern European centres and good quality assets expected to be relatively robust, offsetting weakness in much of Southern Europe.

North American


We see the best prospects in under-developed industrial locations in Canada and the cyclical US office markets where future supply is at 30-year lows.

Asia Pacific


Excess supply in several key markets, e.g. China, will hold back growth, but offices in some of the Australian markets, for example, remain supported by a good demand/supply balance.

Other assets

Foreign Exchange

Very Heavy US Dollar, Neutral Sterling, Light Euro and Light Yen

The US dollar will benefit from the slow tightening of monetary policy, while a weaker euro and yen will eventually support their economies.

Global Commodities


Different drivers, such as a rise in the US dollar, Chinese demand, Middle East tensions, and climatic conditions influence the outlook for different commodities.



While some central banks have pledged to keep interest rates lower for longer, others are beginning to tighten monetary policy, especially in emerging markets.

Key Issues

Our portfolios are slowly becoming more cyclical and we continue to add to our equity positions. Within the House View, we are gradually moving from sustainable yield towards sustainable earnings expansion. Yield opportunities still exist, as official rates are likely to remain low for several years to come in Europe and the UK. Investors should therefore look carefully at equity income and real estate yielding opportunities.

Nevertheless, we expect the economic cycle to become more positive into 2014 despite some downside risks related to policy errors or geopolitical events. A key issue is the ability of firms to drive positive earnings growth as top-line sales improve. Equity market returns in 2014 need not be as robust in 2013 but a revival in profits means equities should outperform the returns from most fixed income assets.

Our House View is therefore Heavy in equities and real estate, Neutral in credit and Light in government bonds. Within fixed income, we prefer higher yielding credit and European bonds to investment grade or other government bond markets. Within equities, we favour the US and, to a lesser extent, the UK and Japan. We are Neutral in Europe and emerging markets.

This outlook of potential investment market developments in 2014 (and beyond)  does not constitute an offer and should not be taken as a recommendation. This is  only the view and outlook of one of the Fund Managers operating in Ireland.

Contact Your Local Independent Financial Adviser

Lucas Financial Consulting Ltd is based in Carrickmacross Co Monaghan. As we straddle four counties – Louth, Monaghan, Cavan and Meath we are ideally placed to become your new Local Independent Financial Adviser.


Warning: These funds may be affected by changes in currency exchange rates.
Warning: Past performance is not a reliable guide to future performance. 
Warning: The value of your investment may go down as well as up.
Warning: If you invest in these funds you may lose some or all the money you invest.
Warning: A deferral period may apply to withdrawals and/or switches from certain funds. Please refer to your product documentation for further details.   



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