02 Sep 2011

Looking for growth - Where to invest?

Looking for growth - Where to invest?

Sarah Considine, Financial Adviser, discusses opportunities for capital growth over the medium to long term.

Sarah Considine, Financial Adviser, discusses opportunities for capital growth over the medium to long term.

So, where is growth likely to come from in the medium to long term?  I believe the best way to answer this is to look back, prior to the recent drop in markets, and recap the types of funds that were attractive. 

In a period of consistently low interest rates and concerns over growth, an option to consider would be Equity Income funds.  The reason for this is that these funds often invest in companies with steady, consistent yields and companies that are non cyclical.  The idea is that the yield makes up for any slower growth and the stock price is usually less volatile. 

In comparison, if you are looking for maximum growth and can accept volatility, then emerging markets must also still be considered. There has been a shift in investor interest to Frontier Markets also known as ‘CIVETS’ or the ‘Next 11’.  ‘CIVETS’ Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa are expected to take over from Brazil, Russia, India and China, or the better known ‘BRIC’ funds.  The ‘Next 11’ countries include Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam. 

The reason for the interest in these smaller countries is that they have a young, growing population and are widely known to be diverse and dynamic economies.  Consequently they are unlikely to have the same market characteristics as more developed countries.  With a young population the assumption is that employment levels will be high and therefore production levels will also be high.  With urbanisation and the size of emerging countries middle class swelling, this in turn produces demand for services and products.  However, it must be considered that GDP growth doesn’t necessarily mean stockmarkets are growing.  

Political instability must also be considered and events in Libya are an example of the effect any instability can have on markets. These countries, however, have relatively low public debt as well as corporate and household debt in comparison to the developed countries.  It has been reported that Turkey’s economy grew at 11% in the first quarter of this year but recently there have been growing concerns regarding the economy overheating and this can undermine confidence in the stocks. (Source:  Invesco Perpetual’s Market Round Up Review July 2011)  

I believe that these funds are definitely an option to consider for some of your funds as part of a diversified portfolio but if you wish to invest tactically, unless you have the appetite for risk, invest with caution. 

Sarah Considine DipPFS, Financial Adviser

Regulated by The Law Society of Scotland. Authorised and Regulated by the Financial Conduct Authority.

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