Investment Predictions for 2007

That is a brave title, don’t you think?

I have spent a lot of time over the last few weeks reading newsletters, watching Bloomberg and CNBC and listening to fund managers trying to give us the hot picks for 2007. Interesting stuff.

Portolio Construction

Before we get into that though a word on portfolio construction. It is my belief that an investment portfolio is a bit like a house. Specifically, when you build a house you do not put the roof on first, you start with the foundations and the walls and you try to make those as solid as possible before you go on and add luxuries like roofing, doors, windows and plasma TV’s.

In an investment portfolio context then, the foundations are your low volatility, steady-eddie returns products and the roofing would be balanced managed funds and then the windows and doors might be long-only equity funds, perhaps even single country stuff and then the plasma TV and gold-plated bathroom fittings are your direct equity and derivative investments. I think that makes my point without being too specific and boring.

Back to the real world then as in my experience I have found that it is generally only the wealthy amongst us who feel that there is value in wealth preservation techniques such as placing the majority of your investment assets in safer, plodding type investments and only investing in the higher risk areas (if at all) for a very small percentage of the portfolio.

True to say that what actually happens is that investors who perceive themselves as not having sufficient capital will always take the higher risk route because they feel that is the only way to get where they want to be. Fine if you are 25 but a recipe for disaster if you are 40 plus and let’s face it, how many 25 year olds do you know that even consider investing for the future?

At the end of this, then I will give a a simple standard portfolio construction of my own.

For investors building capital by investing in regular savings plans these rules are applied quite differently but I think most of those that have these through me already understand that.

Consensus View for 2007

2006, let’s start there. The first half of the year, particularly May and June were not bright and did not bode well but in the second half the big picture turned very positive and we ended up the year with the FTSE up 11% or so and Sterling gaining 14% on the Dollar. The Dow hit 12,000 and rose every month from July 2006 ending up almost 16%. The MSCI World Index was up 1over 17% and emerging markets up around 26% with the leaders being Brazil, Russia, India and China with the latter up a staggering 46%. Eastern Europe continues to defy being up over 40% again

Signs are there for another correction early on in 2007 but generally the bulls are out in droves claiming that rises across the board are inevitable and that the Fed is not going to change rates either way until at least the second half of 2007, some reckon not at all for the whole year.

Dollar weakness is generally expected to continue so investing in dollar denominated funds which in turn invest in non-US Dollar assets should continue to be a good move for investors.

The biggest bear I know of is still quite bullish on emerging markets, particularly Chiona and Lang Yiu of Atlantis was on CNBC yesterday giving a very convincing argument for continued investment in China related securities through the HK markets but then she would say that, would’nt she since her fund invests in that market.

So, where are we going to invest for growth in 2007? Bear in mind that as part of a balanced portfolio, the basic “foundations and roof” components do not really ever change that much although the percentage allocations and actual products used will vary depending on age, currency and a number of other factors. The following are your “non-essential accessories” but where we look for the growth.

• Japan, particularly Japanese Small Caps
• Asian Emerging Markets particularly China and India
• Gold and Silver - also Palladium
• European equities, particularly large caps
• Japanese Yen, Pound Sterling, Euro and Aussie Dollar

Also expect market volatility so at long last those hedge funds and CTA’s might actually start producing results.

Model Portfolio - these are my personal picks but there will be other funds within the same asset classes also applicable.

Foundations and Roof

• Assured Fund
• Absolute Return Fund
• Defined Returns Fund
• GAA ‘Q’ Fund
• Glanmore Property
• Lakeshore I, II and III
• Miton Global
• Miton Extra Income
• Platinum Turnberry

Windows and Doors

• Aberdeen India
• AHL Currency
• Aliquot Commodity Fund
• Aliquot Gold Bullion/Aliquot Precious Metals
• Atlantis China Fortune
• Castlestone Protective Equity - Emerging Markets
• China Everbright Dragon Fund
• Eclectica
• FMG Rising 3
• Forsyth Global Commodity
• HSBC BRIC Markets equity
• HSBC China
• HSBC Japanese Equity
• India Advantage Fund
• Man AHL Diversified
• Platinum Global Dividend

Plasma TV, Gold-plated taps

• CFL
• IQS
• FMG MIddle East and North Africa

This entry was posted on Friday, January 5th, 2007 at 10:58 am and is filed under Newsletter, Offshore Investing, Offshore Funds. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.