Next year is set to be exciting but challenging for investors with a UK election, Eurozone troubles and the ending of global QE programmes. James Nadal asks some leading experts for their predictions.
More questions than answers lay in front of Financial Planners and Paraplanners as they assess where to invest their clients' portfolios in 2015 and beyond.
While Financial Planners usually invest for the long term, the signs are that 2015 will be a choppy year with a volatile scenario. With a General Election looming in the UK, a troubled Eurozone fearing deflation, record low Bank of England rates continuing, QE programmes ending on both sides of the Atlantic and political turmoil across the globe, planners will have a tough job to work out the best course to steer for clients for the long term.

Martin Bamford CFP^CM, managing director of Informed Choice, said: "Financial Planners will have their work cut out keeping clients focused on the long-term and investing to meet specific goals. "Diversification, asset allocation and goals- based investing; cutting through all of the noise we will no doubt continue to hear in 2015. Financial Planners have a great opportunity next year to demonstrate their value.

Another expert on our Financial Planner magazine investment panel believes staying on a chosen course will be key. Mark Dampier, head of investment research at Hargreaves Landsdown, said: "This is a market to hold your nerve and stick with your long term plan and you should be rewarded." Andy Brunner, an investment strategist with Morningstar OBSR, said: "In this environment, equities remain preferred although only high single digit returns appear likely from the US. There is certainly the prospect of stronger gains elsewhere, such as in the EU, Japan and EM, but all come with higher risk attached. The UK is a difficult relative call given the upcoming general election and the importance of key sectors."

Lee Robertson, chief executive of Investment Quorum, said: "To assist clients over the longer term a risk-graded, multi-asset portfolio comprised of suitable funds, either passive or active or, for those like me who don't see it as a binary argument, a combination of both allied to the financial plan will see our clients through."

Key markets around the world have shown a mixed picture over the past year. Over the last 12 months the FTSE 100 Index remained relatively steady, hitting a high point in September when it nearly reached 6900 before falling sharply in October down to 6200. By mid November it had recovered somewhat to just above 6700.

The Dow Jones Industrial Average rose by mid November to close to 18000, the highest point it had reached during 2014. At its lowest point in February it was at 15500 before hovering around the 17000 mark in the summer. While only time will tell what is in store for markets in 2015, our experts were unanimous that it's not the time for ignoring the benefits of sticking to a long term plan.

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Here are the views of our 4 experts.

MARTIN BAMFORD CFP^CM MANAGING DIRECTOR, INFORMED CHOICE

"May you live in interesting times", is the readily accepted English translation of a traditional Chinese curse. As far as the investment markets go, we've been living in those interesting times since the global financial crisis first struck. Thinking ahead to 2015 (and beyond), there seems to be little prospect of things becoming any less interesting.

It's currently tough to look beyond market risks and identify genuine opportunities. Perhaps the biggest risk is the continued intervention from central banks. Nothing feels particularly natural about equities or bonds right now, artificially inflated as they are by quantitative easing.

QE is a powerful drug, one which markets need to beat their addiction to before investments can return to anything resembling normal. We've already seen the hissy fit markets threw when the US Fed suggested they might slow the rate of QE; not stop or reserve it, just slow it down. At some point, investors need to accept the consequences of what happens when QE is withdrawn and then, eventually, reversed.

Debt is another risk, especially in the Eurozone where sovereign debt problems were never properly resolved. Recent market wobbles as the European debt crisis raised its head again have been less severe than in the past, so hopefully here there is scope for a calm, rational solution from policymakers.

As we finish 2014, many parts of the world are in political turmoil. So- called Islamic jihadists seem resistant to Western air strikes in Iraq and Syria, Boko Haram is stepping up its campaign of kidnapping in Nigeria, violence is escalating again in Israel and Gaza, and Russia belligerently refuses to temper its ambitions for Ukraine, despite increasingly punitive economic sanctions. We have worrying developments in North Korea, murderous drug cartels in Mexico and sabre-rattling by China and Japan over uninhabited islands. You can stick a pin in a globe and stand a reasonable chance of identifying a trouble spot.

Closer to home we have a General Election in May which, while unlikely to redefine British politics, could continue its journey away from a two- party system to something incapable of generating a majority government. Austerity measures will need to continue, regardless of which colour party forms a coalition, as the country cannot keep loading more debt onto the existing national debt. Deflation could also become a risk here as it has been in Europe, threatening economic recovery.

Throughout all of this, Financial Planners will have their work cut out keeping clients focused on the long-term and investing to meet specific goals. Diversification, asset allocation and goals-based investing; cutting through all of the noise we will no doubt continue to hear in 2015. Financial Planners have a great opportunity to demonstrate their value.

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LEE ROBERTSON CEO / CHARTERED WEALTH MANAGER, INVESTMENT QUORUM

Despite being told that any predictions in investment are destined to fail I have been asked to comment on the outlook in the short and then longer term to tie in with the way that we as planners discuss long term Financial Planning and how investments may support the plan.

In our opinion it is clear that 2015 will be a year of deviating monetary policies now the US and UK have withdrawn their Quantitative Easing (QE) programmes and are unlikely to raise interest rates for the next 12 to18 months despite some grumblings from Monetary Policy Committee members. However, we expect the Eurozone and Japan to undertake further Quantitative Easing with interest rates remaining low for some time.

So while expectations are that the US and UK economies might be sufficiently strong enough to accommodate higher interest rates it is uncertain that the Fed or BoE are prepared to raise rates before the end of 2015 or early 2016. While risks remain, be it, economic or geo- political central banks will not be prepared to risk threatening their national economic recoveries.

Other geo-political risks remain, the Iran nuclear programme talks have stalled which may lead to further increasing tensions in the middle-east with Israel taking a harder political and military stance, Russia continues its action of supporting separatists in the Ukraine and the US is politically uncertain with President Obama struggling. All of contributes to market volatility.

In the US the continued economic recovery and benefits from fracking should act as a positive for their domestic market but in the UK the General Election result will be very important.

Looking at emerging markets while you could argue that there is value in some of the markets there is a probability that they might suffer from the strengthening US dollar which, in turn, might lead to something of a 'currency war', conversely, if the global economy continues on its path of recovery then it should begin to spread the upside.

Overall, the global recovery should broaden out with the US being the primary engine driving global growth. Falls in crude oil and commodity prices should act as a tailwind with the consumer benefitting from lower prices and lower inflation. Given this backdrop equities should perform positively out-performing both bonds and cash.

Therefore, to assist clients over the longer term risk graded, multi- asset portfolio comprised of suitable funds, either passive or active or for those like me who don't see it as a binary argument a combination of both, allied to the financial plan will see our clients through.


MARK DAMPIER HEAD OF INVESTMENT RESEARCH, HARGREAVES LANSDOWN

Who cares what the FTSE 100 will be at the end of 2015? Yes it's a bit of fun and gives the blindfolded with a dart an opportunity to embarrass the expert but Hargreaves Lansdown stopped providing these pointless types of forecast many years ago.

2015 has so many imponderables even if you get the economics right the markets could move in a very different way. Investors remain cautious and nervous despite a five year bull market. Most equity markets are not particularly cheapnor expensive but in a no-man's land could they rise or fall 10 per cent or 20 per cent?

We have been adamant for at least the last two years that UK interest rates would not rise until after the election. This now seems to be the consensus and arguments are now for a third or fourth quarter rise in 2015. Given the deepening malaise in the Eurozone, price and wage inflation being almost non-existent, its quite possible the UK economy may even start to slow down in 2015. Against that background will the Bank of England raise rates?

The policy of very cheap money is tying deposit rates to the floor, but tight constraints means this cheap money is not freely availability. Mortgages remain hard to come by and if anything further restrictions have made it even harder. Older savers will have a little respite with the new NS&I income bond but beyond this it looks more of the same with savers needing to become investors for reasonable yield.

Ultimately for both the UK and US the question is less about "when" rates rise but rather at what level do they peak? It is hard to see anything much above 2 per cent. A higher interest rate peak is only likely from spiralling wage costs coupled with rising inflation. Neither seem on the cards as we grind our way through the long middle of recovery.

The General Election in May adds real uncertainty with another coalition looking likely although with at least one different member. This is bound to lead to a volatile market in the lead up and afterwards as well.

Politics may well further influence the pound; political uncertainty is likely to make for weaker sterling. The massive trade deficit should reinforce this picture.

Investors should hold cash for emergencies and perhaps a little more to feed into the markets during the dips. Investors should take the right level of risk to meet their longer term goals. This is a market to hold your nerve and stick with your long term plan and you should be rewarded.

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ANDY BRUNNER INVESTMENT STRATEGIST, MORNINGSTAR OBSR.

A year ago, hopes were high of a return to trend-like global growth with confidence building that recovery would effectively transition into a sustainable expansion. Once again, however, most of the leading economies failed to deliver, with the honourable exception of the UK and, as recently as October, the risk of global deflation was once more at the forefront of economic debate.

These fears were particularly pronounced in Europe and Japan and hence these concerns are now being more seriously addressed by their governments and central banks. A combination of rate cuts, loan and bond purchases, including probably corporate and government bonds in the EU and further QE, a delay in raising the sales tax and more fiscal stimulus in Japan, are all aimed at ensuring faster economic growth in 2015.

In contrast, the US and UK economic outlooks are sufficiently robust for their central banks to be considering raising interest rates in 2015. Falling oil and other commodity prices will contribute to stronger consumption while wage growth, having lagged for so long, appears to be on the turn. Consumer and business spending should support GDP growth close to 3 per cent in both countries in 2015.

Despite a likely further slowing in the Chinese economy to around 7 per cent, growth elsewhere in Asia, and particularly India, should enable a stronger outturn from ASEAN and EM Asia. Elsewhere in emerging markets, the backgrounds to Latam and CEEMA are far more mixed, however, given the poor prospects for Brazil and Russia.

This backdrop should remain supportive of risk assets in 2015 although, with the Fed and BOE likely to begin a modest monetary tightening and with equity and credit valuations already at generally full levels, returns could be lower and more volatile than witnessed over the past several years.

In this environment, equities remain preferred although only high single digit returns appear likely from the US. There is certainly the prospect of stronger gains elsewhere, such as in the EU, Japan and EM, but all come with higher risk attached. The UK is a difficult relative call given the upcoming General Election and the importance of several key sectors.

With government bond yields expected to eventually trend higher, returns should be minimal. Corporates may do better, but there is substantial illiquidity risk.

Given the many diverse sectors, returns from commodities are very hard to predict. Most commentators remain wary with oversupply issues in a wide range of key commodities, particularly oil.

UK commercial property looks set for further small gains in capital values, a high level of income but with relatively low risk. Over the next 12 months the IPD index could advance another 10 per cent should the UK economy hold up.