AIC Fund Manager Poll – AIC Article


– UK expected to the best-performing region

– Greatest threats are slowing corporate earnings and a recession

Investment company managers have tipped Energy to be the top performing sector in 2023, followed by Information Technology and Healthcare, according to the annual poll conducted by the Association of Investment Companies (AIC). The poll was carried out with AIC member investment company managers between 14 and 30 November 2022.

On a 12-month view, over a quarter of respondents (28%) favour Energy, with 21% preferring Information Technology and 11% Healthcare. This view is mirrored in respondents’ outlook for the next five years, with Energy (33%), Information Technology (23%) and Healthcare (11%) again predicted to perform best.

Best performing regions and assets

A quarter of managers (25%) tip the UK as the best-performing region in 2023, while almost a fifth (19%) choose the US. There is also support for China and Emerging Markets (both at 10%).

On a five-year view, the UK is seen as offering the most attractive opportunity (25%), closely followed by Europe(18%) and the US and Emerging Markets each receiving 15% of the votes.

Mid-cap equities are predicted to be the best performing asset of 2023 (29%), with large-cap equities following (12%) and renewable energy infrastructure and bonds both at 11%.

Inflation, interest rates and other threats

Investment company managers’ greatest fear is slowing corporate earnings (22%), followed by a recession (16%), inflation (11%) and rising interest rates (10%).

Most managers (61%) think inflation has already peaked, though a quarter (25%) think it will rise further. Just over a tenth (11%) did not offer an opinion either way.

However, investment company managers clearly believe the Bank of England has a job on its hands to get inflation back to its 2% target. Not one respondent thinks the target will be reached in 2023. Just over a fifth (22%) think the target could be reached in 2024, 17% say 2025, but over a third (36%) think we will be waiting till beyond 2025 to see 2% inflation again.

Over two fifths (42%) of managers believe interest rates will reach between 3% and 4% by the end of 2023, whereas 28% expect them to rise to 4-5%. This compares to almost a fifth (19%) of managers who think they will fall to 2-3% by the end of 2023. Only 3% of managers think interest rates will reach 6-7%, and the same number (3%) believe they will fall to 1-2% by the end of next year.

Reasons to be optimistic

A quarter (25%) of managers think the prospect of an end to the war in Ukraine is a cause for optimism. Others remain positive about the opportunity in undervalued companies (19%) and the possibility of the relaxation of China’s zero Covid policy (17%).

Where will the FTSE close at the end of 2023?

The majority of investment company managers (56%) think global stock markets will rise in 2023 compared to 22% who think they won’t rise and 22% who don’t know. When asked where they think the FTSE 100 will close at the end of 2023, 28% of investment company managers say it will close between 7,500 and 8,000, whereas a quarter (25%) think it will close between 7,000 and 7,500. Almost a fifth of managers (19%) are more optimistic and think it will reach somewhere between 8,000 and 8,500.

Annabel Brodie-Smith, Communications Director at the Association of Investment Companies (AIC), said: “With the war in Ukraine continuing, it’s understandable that investment company managers have tipped energy to be the best performing sector of 2023 but predicting information technology to make a comeback is more unexpected.

“The UK is expected to be the most attractive region in 2023 and over the next five years. Of course, there are a number of significant concerns including the impact of a recession on the economy and rising interest rates, but most managers think inflation has peaked and global stock markets will rise next year.

“It’s interesting to hear managers’ views but no-one has a crystal ball. Investors should focus on investing for the long term by creating a balanced portfolio which meets their needs and, if in doubt, consult a financial adviser.”

Please find below comments from investment company managers on the outlook for 2023 and beyond:

UK equities

Simon Gergel, Manager of The Merchants Trust, said: “The UK equity market is lowly valued and there is a wide dispersion of share valuations within the market. This is an excellent environment for stock picking, as we are able to identify many strong businesses that appear to be mispriced, offering attractive dividend yields and the prospect of medium-term capital growth.”

Gervais Williams, Manager of Diverse Income Trust, said: “With inflation, equity markets have flipped from capital abundance to capital scarcity. Although inflationary pressures may moderate in 2023, investors will discover that the new challenges are here to stay. Companies generating cash surpluses will have the advantage, especially those operating in capital intensive industries like much of the FTSE 100. In short, in 2023 the UK stock market could surprise on the upside.”

Ben Ritchie and Rebecca Maclean, Co-Managers of Dunedin Income Growth, said: “Despite much commentary on the ‘death of ESG’, environmental, regulatory and social pressures on companies and investors are continuing to intensify. After a year of chasing energy, commodities, tobacco and defence stocks, we believe 2023 will see investors refocus on the importance of sustainability in generating long-term returns.” 

Iain Pyle, Manager of Shires Income, said: “We believe strongly in the prospects for UK equity income next year. Valuations for UK companies are historically low compared to other developed markets, yields are historically high and with inflation and interest rate expectations now peaking we should see a tailwind for valuations in 2023, even if corporate earnings will see some turbulence.”

Ian Lance, Manager of Temple Bar, said: “We believe that US equities remain overvalued and the UK remains very undervalued. Value is very cheap whilst growth is still expensive. Defensiveness as a characteristic is overvalued, cyclicals are undervalued. Energy is cheap, technology is expensive. We believe that dividend income will return to being an important part of investors’ total return.”

Alex Wright, Portfolio Manager of Fidelity Special Values, said: “Over the past decade that we have run this strategy, there have been similar periods of heightened uncertainty such as around Brexit, the election of Donald Trump and the Covid pandemic. It is environments like these that throw up the best investment opportunities as market participants get overly preoccupied by anticipated headwinds. So, we aim to stay agile and will continue to be on the lookout for new opportunities. It is likely there will be forced sellers, especially if the fund flows picture does not improve and as institutional investors look to rebalance their portfolios.”

Thomas Moore, Manager of abrdn Equity Income Trust, said: “It is a reflection of the benefits of the closed-end structure that we were able to navigate a period of macro turmoil and at the same time enter our third decade of consecutive dividend increases. From a starting point of high dividend cover, we expect many UK stocks to deliver solid dividend growth despite the uncertain economic situation. This could be a good opportunity for investment trusts to show that they can help protect investors against inflation.”

Guy Anderson, Manager of Mercantile, said: “The economic outlook is uncertain and investment risks may be elevated, but much of this has been reflected in the UK stock market, which is trading at record low valuations compared to other markets. This low starting point should be supportive of future returns, while the nature of the sell-off should provide opportunities for active managers who can find the best valuation opportunities.”

Mark Wright, Manager of Momentum Multi-Asset Value Trust, said: “We feel the UK offers considerable opportunity with markets viewing the UK as truly awful when the reality could be simply bad with a corresponding boost to valuations and returns.”

James Livingston, Partner of Foresight Group, who manages Foresight VCT, said: “While the current economic climate is likely to pose several challenges in 2023, we are encouraged by the resilience shown by UK businesses over the past three years. We expect demand for high-quality businesses to remain throughout 2023 as a result of the significant dry powder in private equity funds and on corporate balance sheets. Equity funding will be an important source of growth capital and a means to release founder equity, with debt finance becoming increasingly expensive and with reduced lending appetite from banks.”

Global equities

Bruce Stout, Manager of Murray International, said: “The so-called developed world remains on course to enter recessionary conditions in 2023, the magnitude and duration of which remain unquantifiable at the present time. As wage inflation continues to escalate and growth slows, the corporate profits outlook for many businesses looks very precarious indeed. Within Asia and the developing world, where debt burdens remain manageable and scope for interest rate declines prevail, we believe many businesses should experience a tailwind of improving macro-economic conditions enhanced by longer-term, structural positives of favourable demographics and rising purchasing power. We will continue to follow a fully diversified, quality focused approach.”

Andrew Bell, Manager of Witan Investment Trust, said: “2023 should see corporate earnings take over from macro gloom and multiple compression as the driver for equities. Beyond near-term tactical risks, we expect 2023 to be a year when investors anticipate, or experience, an improvement in the economic cycle, allowing positive returns. The catalyst is likely to be confirmation of a downtrend in inflation, giving confidence in interest rates peaking, though we see the interest rate cycle looking like Table Mountain rather than the Matterhorn.”

Nalaka De Silva, Manager of Aberdeen Diversified Income and Growth, said: “Aberdeen Diversified Income and Growth Trust has managed to navigate the downturn and rising interest rates by carefully rotating the portfolio from listed to private markets, picking spaces of the market that have less correlated income, a high degree of inflation linkage and the optionality for growth.”

European equities

Sam Morse and Marcel Stotzel, Portfolio Managers of Fidelity European Trust, said: “The European equity market has fallen considerably from its high in early January, especially if you recalibrate into US dollars and look at it in real terms. Earnings, however, have held up better so far, supported by a weak euro. We have started to cautiously increase our exposure to some companies that have performed poorly recently and now look particularly attractive. This includes companies in the financials and industrials sectors that have the potential to do well in a cyclical recovery but have the balance sheet strength and pricing power to weather any macroeconomic uncertainty.”

Japanese equities

Nicholas Price, Portfolio Manager of Fidelity Japan Trust, said: “With the global economic outlook darkening, Japan is an outlier – showing a degree of resilience as Covid-19 restrictions ease and the economy finally reopens. Unlike many other countries, the economic policies of the Japanese government and central bank are a positive mix of fiscal expansion and monetary easing. While we continue to find a lot of ideas among mid/small caps, we are also seeing attractive opportunities in the unlisted sector. We are also starting to see some emerging opportunities in China-related names and among oversold cyclicals that have already priced in a sharp decline in the US purchasing managers’ index.”

Canadian equities

Dean Orrico, Manager of Middlefield Canadian Income Trust, said: “While we expect an economic slowdown in 2023, we do not anticipate a deep and prolonged recession. North American equities, and Canadian equities in particular, should outperform global peers. Canada is a net exporter of oil, gas and electricity and benefits from higher energy prices. Its economic outlook is also supported by record levels of immigration, lower inflation and a stronger consumer than other developed nations.”


Evy Hambro, Co-Manager of BlackRock World Mining Trust, said: “This year, we have seen a growing acceptance that the low carbon transition simply can’t happen without mining companies supplying the materials required for technologies such as wind turbines, solar panels and electric vehicles. The need to build out these technologies has only increased over the past 12 months, with governments, particularly in Europe, committed to reducing their dependence on energy imports from Russia. This represents multi-decades of structural demand growth for commodities like copper, steel, and lithium. The shift towards electric vehicles continues to be one of the strongest trends we anticipate, creating growth opportunities for the companies supplying the materials enabling the transition.”


Tim Levene, CEO and Manager of Augmentum Fintech, said: “In the second half of 2022 we have started to see valuations shift back towards pre-2020 UK levels, alongside unprecedented levels of dry powder amongst venture capital funds globally. We would expect to see a more active investment climate from Q2 2023 onwards, particularly in the private fintech sector where the opportunity remains significant. Venture investors are increasingly seeking out truly disruptive businesses that are more capital efficient and exhibit both compelling gross margins and a plausible path to profitability.”


Woody Stileman, Managing Director of RTW Funds which manages RTW Venture, said: “It’s been a challenging year or more for biotech and venture capital generally. Macro risks, inflation, interest rates and other market factors will ebb and flow, but ultimately value creation is driven by innovation, and we firmly believe that we are in the midst of a golden age for medical innovation. With sector valuations at historic lows, opportunities are abundant and varied and the investment company structure provides us with the flexibility and duration to capture them.”

Environmental markets

Fotis Chatzimichalakis, Co-Manager of Impax Environmental Markets, said: “The long-term structural drivers of environmental markets continue to strengthen, with incremental tailwinds from a drive towards energy security as we wean ourselves off Russian oil and gas. This decarbonisation effort should support renewable energy companies as well as companies providing energy efficiency solutions.”

Jon Wallace, Manager of Jupiter Green Investment Trust, said: “It is clear that burgeoning environmental challenges will become more and more central to global development. The great energy shock of the last 18 months and the critical role that ‘clean’ solutions are playing in responding to the long-term challenges of energy security, affordability and climate change serves to highlight the central importance of environmental solutions in solving unavoidable and era-defining issues.”

Emerging market equities

Emily Fletcher, Co-Manager of BlackRock Frontiers, said: “We believe that frontier and smaller emerging markets are very well positioned as global inflation starts to peak out. Many countries in the developed world have seen more than two years of excess money creation which is only just starting to drain from the system. They also have limited experience operating under persistently high inflation. In contrast, countries in our investment universe have shown commendable fiscal and monetary discipline which creates relative opportunity. From a country lens, we continue to like the Middle East and Indonesia, Malaysia, Kazakhstan and Chile. We also see stock specific opportunities in parts of Eastern Europe.”

Nick Price, Portfolio Manager of Fidelity Emerging Markets, said: “It has been a challenging year for emerging markets against the backdrop of inflation, geopolitical tensions and slowing growth, and we expect these factors to persist into the new year. The asset class has derated significantly, particularly when compared to developed markets. Earnings downgrades in certain industries will come, and some companies will be particularly vulnerable to higher costs, recession, and potentially punitive sanctions. However, it’s easy to become fixated on the past and forget that the market is a forward discounting mechanism; we are of the view that a lot is already reflected in the price.”


Stephen Inglis, Manager of Regional REIT, said: “The outlook for 2023 and beyond for the UK economy is buoyant. This is based in part upon post-Brexit deregulation allowing the City to provide flexible capital solutions to allow companies to grow; a highly skilled workforce, which is increasingly attracting labour from Commonwealth countries and enticing those European leavers with UK National Insurance numbers to return, and a competitive foreign exchange rate making the UK an appealing place to conduct their business. These and many more factors should see the UK regions and the commercial office space sector thrive in the coming months and years.”

Helen Steers, Partner at Pantheon and Lead Manager of Pantheon International, said: “We believe that the private equity sector is well positioned to perform in the current macroeconomic environment. Private equity managers have a long-term investment horizon and provide access to niche subsectors that are often under-represented in the public markets and offer compelling investment opportunities. The hands-on nature of private equity ownership, its focus on long-term value creation and significant financial and operational resources will enable portfolio companies to continue their growth despite the current uncertainty.”

Richard Sem, Partner at Pantheon and Investment Manager of Pantheon Infrastructure, said: “We believe that our portfolio is resilient, investing in essential services which offer strong downside and inflation protection, especially in recessionary times. Growth dynamics have been recently driven by the transition to a net zero economy and the digitalisation of social and economic activity. Renewables and energy efficiency continues to be a particularly important sub sector with most major OECD economies focussing on the path to net zero.”

Randall Sandstrom, CEO of Sequoia Investment Management Company which manages Sequoia Economic Infrastructure Income, said: “We expect 2023 to be a period of increasing short-term policy rates in the first half of the year, with inflation peaking in the US, UK and Eurozone and the US dollar peaking. Fixed income will become more attractive and investors will look to extend duration. In stocks, financials will do well in this environment and technology should get a boost from lower term rates toward the end of 2023. In infrastructure, we expect TMT, healthcare and energy transition to outperform and for power to strengthen toward the second half of 2023.”

Alex O’Cinneide, CEO of Gore Street Capital and Manager of Gore Street Energy Storage, said: “Energy storage sits at the forefront of the transition to sustainable energy, and as the investment manager, I am proud of Gore Street Energy Storage Fund’s vital role in the international decarbonisation of electricity grids. Flexible assets within the energy transition sector are well-positioned to thrive despite the current economic and political climate.”

Hermina Popa, Manager of Schroder BSC Social Impact, said: “The challenging economic environment we have been experiencing as a result of the ‘multi-crises’ of the past several years is disproportionately affecting the most vulnerable and disadvantaged groups in the UK. The Resolution Foundation estimated that expected falls in real earnings will push an additional 2.3 million people into poverty, including 700,000 children. In this context, the significant impact delivered by the Schroder BSC Social Impact Trust’s portfolio companies is needed more than ever.  Examples include Hull Women’s Network that works with survivors of domestic abuse and AgilityEco tackling fuel poverty.”

Eileen Fargis, Manager of Ecofin US Renewables Infrastructure, said: “The outlook for the US solar and wind sector is very exciting for 2023 and beyond. With the passage of the Inflation Reduction Act and swelling popular support for carbon reduction and net zero goals, 2023 may in fact represent a significant inflection point for growth in the industry. Additionally, associated battery storage is set to become an increasingly interesting part of the renewables story in the US in the coming years.”

Christopher Abbate and Jamie Brodsky, Co-Managers of Riverstone Credit, the investment manager of Riverstone Credit Opportunities Income, said: “As an energy specialist (broadly defined), we’ve always taken a very balanced and sincere approach to ESG. We have chosen to take a leadership stance by not avoiding hydrocarbons altogether, but instead using our capital to effect change and facilitate decarbonisation within one of the largest carbon emitting sectors.”

Dr John Joseph Traynor, Managing Partner of HydrogenOne Capital Growth, said: “The critical role that clean hydrogen can play in the energy mix has rapidly risen up the agenda in Europe and around the world this year – as seen at COP27 when hydrogen was centre stage in solving questions around the energy transition and energy security. In 2022 we reaffirmed our approach to ESG, by classifying as an Article 9 fund, the highest classification under the SFDR, and by becoming a signatory of the PRI. As the first LSE-listed investment fund dedicated to clean hydrogen, we remain confident that the company is well positioned to capitalise on the opportunities being presented by the rapidly growing sector.”

For more information about the AIC and investment companies, visit the AIC’s website.

Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.

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