Mr Dixon said: “2018 was challenging for investors and we expect to see continued upheaval in 2019.
“This uncertainty is driven by slowing global growth, Brexit, and the uncertain pace of interest rate increases.
“We believe that outcomes in 2019 are not intuitive and will surprise the majority of investors.
“In particular, for asset classes which under-performed over 2017-18 and are now priced with very low expectations, 2019 could be the comeback year.”
Mr Dixon’s predictions are:
1. Fixed interest will no longer offset equity volatility
Government bond yields in developed markets are richly valued with yields ex-US at historically low levels. However with inflation rising and Government finances under pressure across Europe and North America, we expect 2019 to confirm the end a 30-year bull market in bonds. Bond yields will rise beyond market expectations, prices are likely to decline, and volatility will increase.
Bonds will be less able to diversify equity risk. Diversified portfolios will be less diversified.
2. The biggest risk investors face is a rise in the £ sterling
The pound is currently in the bottom quartile of its 10-year range, with the currency put through the wringer again recently with the latest round of Brexit twists & turns. Despite significant ongoing uncertainty around Britain’s exit from the EU – including the possibility of ‘no deal’ – we are entering the Brexit end-game with all sides seeking an amicable and economically sensible deal. An agreement remains the most likely outcome. This will provide greater trading certainty, higher confidence in the UK, and hence higher value for the £ sterling.
This will reduce the £ value of global assets in investors’ portfolios and could reverse gains made following the 2016 Brexit vote.
3. The FTSE-100 will be the best performing global stock market in 2019
The UK stock market has underperformed other stock markets since 2015 and now offers very attractive relative value. Clarity on Brexit and even modest domestic growth will provide catalysts for the UK market to close the valuation gap with other stock markets.
The FTSE-100 could be the big surprise of 2019.
4. Neil Woodford will outperform Terry Smith and Nick Train
Overlooked value has the potential to become more widely recognised next year, as dividend streams prove resilient which the market recognises by applying higher valuation multiples to dividend payers.
Neil Woodford’s preferred approach of focusing on under-valued stocks and sectors may see him outperform the 2013-18 ‘star managers’ Terry Smith and Nick Train. Many of their growth stocks are now priced for perfection and assume high levels of future profit growth which could disappoint.
5. AA shares will outperform those of Amazon.com
Despite the recent market pull back, investors are still paying very high multiples for growth stocks such as Amazon. However tech growth in 2019 may well disappoint and impact tech valuations. On the flip side, boring old franchises such as the AA, with declining debt and stabilising profits, could exceed low market expectations.