Australian Unity Investments’ equities fund manager partners agree that while the overall outlook for markets – both domestically and internationally – looks positive, investors need to be selective.
Chad Padowitz, chief investment officer at global equities manager Wingate Asset Management, said 2014 will be a more challenging year than 2013 for investors, although there are still good opportunities around.
"There was a bit of investor complacency in 2013, as the lack of alternative investment options and low volatility enticed investors back into the equities market. Yields have been attractive and valuations have largely been an afterthought.
“This year, investors will need to pay more attention to valuations in order to pick the best opportunities.
“There will also be significant differences in how various economies perform in 2014. For instance, the US is looking very strong, with an improving labour market, oil/shale revolution, manufacturing renaissance and strengthening housing markets. However Europe is treading water, and China is making the difficult transition from investment to consumption, and may experience a credit crisis.”
Mr Padowitz said in addition to the energy sector and selected cashed up corporates, some of the best opportunities for international equities are likely to lie in healthcare, where investors can benefit from improving efficiencies.
Mr Padowitz added that the introduction of “Obamacare” in the US will create both winners and losers for investors.
“Companies with scale and low costs – such as large insurance companies and service providers – will benefit from Obamacare, while those with high profit margins and minimal product differentiation will find the new environment much more challenging. This includes hospitals and medical professionals.”
Donald Williams, chief investment officer at Australian equities manager Platypus Asset Management, agreed with the opportunities in healthcare and said there are also a number of positive signs for the domestic market.
“We are now seeing the lagged impact of low domestic interest rates, which are starting to have the effect the RBA was looking for, and the declining Australian dollar is generally positive for earnings.
“Consumers are more optimistic; the property market is improving, resulting in a wider wealth effect among Australians; and the IPO market is back which is often a precursor to M&A activity.
“All these indicators lead us to be reasonably bullish for Australian equities, though the February reporting season could be tough, reflecting the ongoing weakness in the economy last year.” Mr Williams said.
In the Australian healthcare sector, Mr Williams said that there are a number of positives for companies such as Resmed, Ramsay Healthcare, Healthscope and CSL.
“The falling Australian dollar combined with the defensive earnings profile of companies such as Ramsay, Virtus, Resmed and CSL suggest a good outlook for such companies.
“We also anticipate a number of healthcare IPOs in 2014 which will create good opportunities for investors.”
Mr Williams added investors will need to pick and choose where to put their money very carefully.
Chris Smith, head of healthcare and retirement property at Australian Unity Investments, said like the rest of the world, growth in healthcare property and services in Australia is pretty much guaranteed because of the aging population.
“Our aging population and greater longevity, combined with generally increasing prosperity, will lead to greater demand for healthcare, both facilities and services.
“Both the government and the private sector will need to step in to meet this demand over the next few decades,” Mr Smith said.