Healthcare and emerging markets will deliver some of the best returns next year, according to a study that shows UK fund managers' optimism about the post-Covid world.
The imminent rollout of vaccines across the globe and the receding threat of Covid-19 mean UK fund managers expect rising markets next year, the Association of Investment Companies (AIC) found.
AIC, the UK trade body for closed-ended funds, found that 38% of managers see the arrival of vaccines as the biggest cause for optimism.
Other significant factors included technology-driven economic growth and a value-growth rotation which both received 14% of the vote.
Close to a quarter (24%) of managers tipped emerging markets as the sector most likely to reward investors, despite the fact that many developing economies have been hardest hit by the pandemic.
The UK and the US were also highlighted by 19% and 14% of managers, respectively.
Respondents were similarly positive on these markets over the longer-term with emerging markets and Asia Pacific ex-Japan both tipped by 19% to outperform over the next five years, followed by the UK and the US both tied on 14%.
According to the AIC’s communications director, Annabel Brodie-Smith, “the prospect of a much longed-for return to normal is influencing managers’ thinking”.
Healthcare equipment and services was picked as the likely best performing equity sector for 2021, collecting a 19% share of the vote, while the same number of managers picked travel and tourism as most likely to outperform over the next five years following a catastrophic 2020.
Investors’ interest in ESG has also been sharpened by the pandemic, according to 62% of respondents.
The poll, conducted between November 9 and 30, also asked managers to name the biggest threat next year with rising interest rates cited by 19% followed by high equity valuations.
There were other notes of caution from the canvassed managers. Craig Baker, global chief investment officer at Willis Towers Watson and chair of the Alliance Trust Investment Committee, warned against betting on particular countries, sectors or investment styles.
“We are in the midst of a global pandemic and, despite positive news on the vaccine front, there is still a lot that could go wrong, not least the policy responses which could vary widely between governments,” said Baker.
“Any rise in inflation expectations or significant tax changes could dramatically affect the style or sectors driving the market. For that reason, we think it’s vital to have a diversified portfolio focused on stock selection rather than macro factors as its key driver.”
The poll gathered responses from 14% of the association’s 358 member firms.
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