It’s that time of year again – where every investment manager worth their salt is putting out a list of their top 10 great investment ideas for next year. We didn’t want to be left out, but in true Affluence style, we also wanted to do it differently. So here, in no particular order, are 8 unexpected investment ideas and predictions for 2016.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
A word of warning though. We are not saying all of these things will happen. Just that no-one expects them to and some of them may surprise. Most investors and market experts are betting they absolutely will not happen which, as Mark Twain so eloquently described above, might not be that smart.
So here’s 8 investment ideas and predictions that just could, maybe, happen in 2016…
- The Australian stock market outperforms the US market.
We have lagged horribly for the past two years, but some mean reversion is now overdue. Aussies are currently quite pessimistic, while US market participants could hardly be more bullish. That seems like a recipe for a square-up to us. Plus, we expect many (although not all) commodity prices to show signs of bottoming in 2016, leading to buying of resource stocks in anticipation of price rises in 2017 and 2018.
- Managed funds make a comeback – at the expense of ETF’s.
Markets are choppy and have been for a while. This is where the best active fund managers earn their stripes (and their fees). The rise of comparison sites and fintech companies are leading to a greater appreciation of under-discovered active, boutique managers and they will start to get a bigger slice of the pie – at the expense of ETF’s and maybe larger established funds. We also expect one or two high-profile hiccups for ETF’s in 2016, which will lead investors to consider if the model isn’t quite as robust as the market has come to expect.
- The RBA increases Australian interest rates at least twice.
Current expectations are for more falls, or no change. Aussie 10-year bond prices are very close to US levels. Historically, this is very unusual and we expect it to change. One way or another, probably because our economy is going better than expected, we could see a couple of interest rate rises in 2016.
- The AUD rises against the USD.
Current expectations are for further falls. We think, based on the interest rate predictions above and the potential for a relatively and unexpectedly stronger Aussie economy, the AUD could in fact stage somewhat of a recovery. We’re picking the AUD to be around $USD0.80 by the end of 2016, but be warned, currencies are very difficult to predict and it’s really just a guess.
- China turns out OK.
The death of the Chinese economy has been speculated upon every year since 2009. Hasn’t happened yet. Expectations are poor for the coming year but we think it will be OK. While certainly things are slowing down and we continue to fear for bulk commodity prices (particularly coal and iron ore), we think the urbanisation and consumerism trends will continue in China in 2016, allowing growth to surprise on the upside.
- Gold miners return over 100%.
This is the most beaten up sector we can find. We believe all of the negatives are priced in, and none of the potential for positive surprises. We wrote more about our views and the reasons for it here, but suffice to say we are keeping a very close eye on things and recently made a very small allocation into the sector in anticipation of potential upside.
- Oil trades above USD$60 per barrel.
Demand might just increase next year more than expected. Future supply growth expectations could fall back as the delayed impact of reduced exploration and development spending starts to become apparent. Many smaller players may struggle to refinance existing debt and will be forced to resort to sourcing equity at much higher rates, causing marginal production costs to increase and marginal projects to be abandoned or deferred. The combination of these factors could well lead to an oil price recovery in 2016. We are less confident it will prove to be permanent.
- Disruption of financial services commences in earnest.
There are many quite brilliant companies out there using technology to disrupt or solve problems in the financial services space. A number are now starting to get noticed and 2016 might just be the year they get a lot more traction. The end result, in our view, will be lower fees, the rise of the boutique fund manager, fund outflows from benchmark hugging large fund managers and over time a significant fall in the profitability of the largest wealth managers in Australia. This will eventually (but not in 2016) lead to the big banks looking to divest or spin out their entire wealth management businesses as returns on capital fail to meet increasingly higher targets due to the impact of increasing banking regulations.
So that’s it. Our list of unfashionable investment ideas and predictions that just might happen. When the dust settles and 2016 comes to an end, we expect maybe half to have occurred.
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