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Coutts Outlook 2014: How to make money in an era of low growth

Coutts launches its 2014 investment outlook entitled Today & Tomorrow, which highlights Coutts’ view of the economic landscape and key investment themes. The publication provides insight into the strategies investors should consider today to build a portfolio for tomorrow, according to Coutts’ three Chief Investment Officers – Alan Higgins for the UK, Gary Dugan focused on Asia and the Middle East and Norman Villamin covering Europe.

Gary Dugan, Chief Investment Officer for Asia and the Middle East at Coutts, said: “Although global stock markets recovered in 2013 as investors’ optimism returned, we believe policymakers face a triple challenge of indebtedness, quantitative easing (QE) and changing demographics. As a result, we believe we are in for a sustained period of low growth and low interest rates.”

In order to best manage investments in this economic environment, the key investment themes are:
– Keeping it safe – low bond yields have been causing investors anxiety for years, but there are ways to enhance yields without taking too much risk. European and UK investment-grade bonds can offer protection against interest-rate uncertainty at a reasonable price. Some emerging-market corporate bonds in Asia may play an important role in portfolios for investors willing to accept the greater risks inherent in this asset class.

– Stocking up on income – dividend growth pays when real interest rates are negative, but don’t just focus on those that yield most. The income play has been popular for some years, so selection is important. We would look for sectors that offer net dividend yields that are historically above average, and with room for dividend growth.

– Quest for growth – investors need to drill down deeper to unearth growth potential. We still prefer equities over bonds as we enter 2014. Emerging markets continue to have long-term growth potential. In terms of equities, shares in the luxury goods sector trade at a discount to many world equities. Technology companies offer growth potential although you may want to look beyond the sector’s giants for the best opportunities.

– Changing risks – political instability remains a threat to Europe’s fledgling recovery. Japan’s politicians are playing with high stakes. Low nominal growth rates in developed nations mean tax hikes are a real possibility.

– Who dares wins – low interest rates mean that investors need to step up the risk ladder in order to achieve returns. High-yield bonds are now closely correlated to equities. Consider absolute-return funds to diversify portfolios. Cash deposits will continue to lose money in real terms (i.e. after inflation) for savers.

Randa Mazzawi, Borouj Consulting
T: +971 4 3403005

Mayssa Makhlouf, Borouj Consulting
T: +971 4 3403005