While markets and economies have experienced a lot of bad news over the past few years even amid the gloom bright spots always emerge. In such cases it can be worth getting exposure via a low-cost passive fund, as the area is going to hopefully deliver good returns without the intervention of an active manager, and with low costs you get more of the return. Therefore we asked three wealth advisers what areas they choose for 2013, and their favourite exchange traded funds (ETFs) for their chosen area.
WORLD EQUITIES: Edward Allen, portfolio manager, Thurleigh Investment Managers
"2013 will be a mixed year during which we expect to see a broader global uptrend with the continuation of significant volatility. While we think that emerging markets will be strong and could potentially see the most equity market growth, we would recommend retaining some exposure to developed equities. A simple and cost-effective way of getting this kind of exposure is through the iShares MSCI World ETF (IWRD). This gives exposure to a broad basket of developed market global equities, with a natural market-capitalisation-led bias towards the US (around 53 per cent of the underlying index). The index comprises more than 1,600 of the largest companies worldwide over 24 developed countries, so we think it is a great way to access equity markets. This fund provides both sufficient diversification to weather any storms that beset equity markets and access to the reacceleration of high-quality company earnings as 2013 continues."
iShares MSCI World is a physical ETF that uses optimised replication, meaning it physically buys a number of the shares in the underlying index. It currently holds 1,253 shares. The fund has a total expense ratio of 0.5 per cent.
|iShares MSCI World (IWRD)|
|PRICE||1745p||1 YR PERFORMANCE||18.48%|
|SIZE OF FUND||$4.87bn||3 YEAR PERFORMANCE||23.60%|
|LAUNCH DATE||28-Oct-05||5 YEAR PERFORMANCE||-4.20%|
|INDEX||MSCI World||TOTAL EXPENSE RATIO||0.50%|
|BASE CURRENCY||US dollars||MORE DETAILS||www.iShares.co.uk|
|TRACKING ERROR SINCE LAUNCH||0.21%|
Performance data as at 20 December 2012
Top 10 holdings as at 20 December 2012
|Johnson & Johnson||0.76|
Geographic breakdown as at 18 December 2012
CHINA: Christopher Aldous, chief executive of Evercore Pan Asset
"2013 is going to be a year of easy money all around the world. The US, UK, China, Japan, Brazil and other smaller countries are all undertaking some form of monetary stimulus and it is arguably only a matter of time before the EU follows suit.
This accommodative economic stance should be good for real assets such as equities and property. Equally, it may eventually lead to higher levels of inflation, which could hurt bond valuations. Our stance, therefore, is to switch some of our corporate bond ETFs into equities and to add to the fairly high property exposures we have carried all year. Our preferred equity markets are the US, China and the UK, all accessed via ETFs.
One of the cheapest major equity markets is China, with a current price/earnings ratio of around 8 times and yield of well over 3 per cent. ETFs that track the more esoteric markets tend to have higher fees, so we shop around carefully. In this case our choices include the HSBC MSCI China ETF (HMCH)."
MSCI China tracks the largest Chinese companies listed in Hong Kong, targeting all companies with a market capitalisation within the top 85 per cent of their investable equity universe. It has around 141 holdings.
HSBC MSCI China also uses physical replication so buys the shares in the index rather than getting its returns via a derivative swap and has a TER of 0.6 per cent.
HSBC MSCI China ETF (HMCH)
|PRICE||386p||1 MTH PERFORMANCE||1.79%|
|SIZE OF FUND||$105.67m||3 MTH PERFORMANCE||14.69%|
|LAUNCH DATE||28-Jan-11||1 YEAR PERFORMANCE||19.42%|
|INDEX||MSCI China||TOTAL EXPENSE RATIO||0.60%|
|BASE CURRENCY||US dollar||MORE DETAILS||www.etf.hsbc.com|
|TRACKING DIFFERENCE SINCE LAUNCH||0.70%|
Performance data as at 30 November 2012
Top 10 holdings as at 30 November 2012
|China Construction Bank||8.18|
|Industrial & Commercial Bank of China||6.5|
|Bank of China||4.7|
|China Life Insurance||3.24|
|China Petroleum & Chemical||2.63|
|Ping An Insurance (Group)||2.1|
AGRICULTURE: Mick Gilligan, head of research, Killik
"Don't be short on agricultural commodities - with more than seven billion people on the planet to feed and clothe, we believe demand for the earth's resources is likely to intensify. At the same time, the increased incidence of disruptive weather patterns and a shortage of water are likely to impact yields. As a result, we expect the price of agricultural commodities to increase, and a good way to play this is via the Powershares Global Agriculture Nasdaq OMX ETF (PSGA)."
The NASDAQ OMX Global Agriculture Index aims for capital appreciation from a broadly diversified segment of securities investing in agricultural and farming-related activities. Companies must be involved in agriculture as deemed by NASDAQ OMX Agriculture (fertilisers, agricultural chemicals, farming technologies) and trade on a recognised global stock exchange
Powershares Global Agriculture Nasdaq OMX ETF uses physical replication and has a TER of 0.75 per cent. It currently holds 49 shares.
Powershares Global Agriculture NASDAQ OMX Fund (PSGA)
|PRICE||758.38p||1 YR PERFORMANCE||9.63%|
|SIZE OF FUND||$18.5m*||3 YEAR PERFORMANCE||5.91%|
|LAUNCH DATE||15-Sep-08||TRACKING ERROR SINCE LAUNCH||1.26%|
|INDEX||NASDAQ OMX Global Agriculture||TOTAL EXPENSE RATIO||0.75%|
|REPLICATION METHOD||Physical||MORE DETAILS||www.invescopowershares.co.uk|
|BASE CURRENCY||US dollars|
Source: Invesco Powershares, *Morningstar.
Performance data as at 30 November 2012
Top ten holdings as at 20 December 2012
|POTASH CORP OF SASKATCHEWAN||7.63|
|K + S||3.83|
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