Fidelity Personal Investing’s market and investment view, January 2014. Assessing main investment themes; equities, bonds, property, and commodities. https://www.fidelity.co.uk/static/pdf/personal/markets-insights/investment-outlook-january-2014.pdf More at: https://www.fidelity.co.uk

1. Investment Outlook
Fidelity Personal Investing’s market and investment view, January 2014
“ s we enter 2014, my greatest worry is that few people
A
are worried. That level of complacency about the investment
outlook has at times in the past been a contrarian signal
for investors. However, more of the same, perhaps less
turbo‑charged, remains my central view.”
By Tom Stevenson, Investment Director
Positive market views are commonplace after a strong year
because investors have a tendency to extrapolate the recent
past into the future.
US stock market in 2013
1900
SP 500 Composite – Price Index
1850
This investment outlook should not be viewed as advice or an
invitation to purchase any specific fund or security. It simply
represents our considered outlook for the next 12 months or
so. To arrive at this market view I have tapped into the wealth
of investment expertise within Fidelity’s investment team,
supplemented by wide reading of other views “on the street”.
1800
1750
1700
1650
1600
1550
1500
1450
On the back of a 30% rise in the SP 500 index in 2013, it is
hard to avoid the temptation to project further gains this year,
however, more of the same in 2014 is, broadly speaking, my
investment view today. There are risks to this view, as there
always are, but overall this feels like a good time to remain
fully invested.
Jan Feb Mar Apr May Jun
Jul
Aug Sep
Oct
Nov Dec
Thomson Datastream, SP 500 Price Index from 1.1.13 to 1.1.14
Past performance is not a guide to future returns.
When investing in overseas markets, changes in currency
exchange rates may affect the value of an investment.
Performance over five years
2009
SP 500
2010
2011
2012
2013
12.6%
18.7%
2.9%
10.9%
29.9%
Source: Thomson Datastream, from 31.12.08 to 31.12.13 with income reinvested in £ terms.
I present this view in the hope that you will find it a helpful
framework for your investment decisions in the year ahead. I
intend to update the view each quarter, looking forward another
12 months at each review, although I expect changes to occur
only gradually. At Fidelity, we have always promoted long-term
investment and discouraged investors from chasing the latest
investment fad.

2. Main investment themes for 2014
1. We prefer equities to bonds and commodities. There is selective value in commercial
property. Residential property in the UK looks underpinned by policy and limited supply.
2. Within equities, the US and Japan are the most attractive markets. The UK looks better
than the rest of Europe. Emerging markets are exposed to the effects of the Fed’s taper.
3. Within bonds, high yield looks most interesting for income seekers. Strategic bond funds
are the best way of investing in fixed income for most investors.
4. China is the most interesting contrarian play this year, offering investors exposure to
long‑term growth at a historically cheap valuation.
Contents
Asset classes . . . . . . . . . . . . . . . . . . . . . . . . 3
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Commodities . . . . . . . . . . . . . . . . . . . . . . . . 6
Equities – a regional perspective . . . . . . . . 7
Bonds – in focus . . . . . . . . . . . . . . . . . . . . 12
Investment risks in 2014 . . . . . . . . . . . . . . . 14
2
Important information: Please be aware that past performance
is not a guide to what might happen in the future. The value of
investments and the income from them can go down as well as
up and investors may not get back the amount invested. This
information does not constitute investment advice and should
not be used as the basis for any investment decision nor should
it be treated as a recommendation for any investment. Investors
should also note that the views expressed may no longer be
current and may have already been acted upon by Fidelity.
Fidelity does not give investment advice. If you are unsure about
the suitability of an investment, you should speak to an adviser.
Before you invest, please ensure you have read Doing Business
with Fidelity and the Key Investor Information Document (KIID)
and associated charges; or Fund Specific Information Document
(FSI), relevant to your chosen fund(s). These documents give you
all the information you need to know about Fidelity, including
details of the objective, investment policy, risks, charges and
past performance associated with the fund(s). Instructions on
how to access these documents can be found at fidelity.co.uk/
importantinformation. If you do not have a computer or access
to the internet please call Fidelity on 0800 41 41 61 to request
a printed copy of the documents. The Full Prospectus is also
available on request from Fidelity.

3. Asset classes
A key decision every investor needs to take when constructing a
portfolio relates to the balance between different asset classes.
With economic recovery underway, we have a preference for
equities over bonds and commodities.
UK GDP growth (quarter-on-quarter)
Select List funds
Mixed Assets – Balanced
2.0%
Architas Multi Asset Active Intermediate
1.5%
FC Multi Manager Navigator Distribution
1.0%
Henderson Cautious Managed
0.5%
Investec Cautious Managed
0%
-0.5%
Mixed Assets – Defensive
-1.0%
AXA Defensive Distribution
-1.5%
-2.0%
Jupiter Distribution
-2.5%
Prudential Managed Defensive
-3.0%
2009
2010
2011
2012
2013
Threadneedle Defensive Equity and Bond
Source: Thomson Datastream, 9.1.14
Mixed Assets – Flexible
Past performance is not a guide to future returns.
CF Miton Strategic Portfolio
We see selective opportunities within commercial property. For
investors who are nervous after 2013’s strong run in equities, cash
is the safest haven despite its still negligible yield.
Invesco Perpetual Managed Growth
Investec Managed Growth
Jupiter Merlin Growth Portfolio
Some investors will have the confidence to use my comments
as a framework for making their own asset allocation decisions,
perhaps using Fidelity’s Select List to narrow the search to a shortlist of funds which our experts particularly like. For those who prefer
to leave asset allocation to professional managers, there is a wide
range of multi-asset or balanced funds.
Mixed Assets – Growth
Important information on The Select List: The funds on
The Select List are hand picked from the range available on our
fund supermarket. The funds featured in this brochure are from the
December 2013 update. For more information on how these funds
are selected visit fidelity.co.uk/select. We believe that The Select
List provides an excellent choice of funds for anyone constructing
their own investment portfolio, although it is not a recommendation
to buy. Equally, if a fund you own already is not on The Select List
we are not recommending that you sell it – the list represents funds
and managers that our experts particularly rate.
Threadneedle Global Equity and Bond
Aberdeen Multi Asset
AXA Framlington Managed Balanced
Investec Diversified Growth
Jupiter Merlin Balanced Portfolio
Mixed Assets – Income
Aberdeen Managed Distribution
Aviva Investors Distribution SC1
Fidelity Multi Asset Income
Premier Multi Asset Monthly Income
3

4. Equities
Global Equity
Global Equity Income
The backdrop for equity investors is generally positive with a
global recovery underway, untroubled yet by rising inflation. This
should keep monetary policy loose over a one year time horizon.
Falling inflation enables interest rates to remain
lower for longer
5.5%
6.0%
5.5%
5.0%
4.5%
The benefit of re-investing dividends
220
4.0%
4.0%
3.5%
3.0%
3.0%
FTSE 100 (without income reinvested)
FTSE 100 (with income reinvested)
200
180
160
2.0%
2.5%
2.0%
1.0%
1.5%
1.0%
Income remains in short supply in an environment of generally
low interest rates around the world. Re-invested income is a
major contributor to total returns from many investments and it
can help to smooth returns as well as being a sign of corporate
strength and prudent management. I believe equity income
investing will continue to be a theme as long as interest rates
remain at today’s historically low levels.
140
120
100
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0.0%
UK Consumer Prices (left hand scale)
UK Bank of England base rate (right hand scale)
Source: Thomson Datastream, 14.1.14
Past performance is not a guide to future returns.
Despite the strong performance of many markets in 2013,
valuations do not yet look excessive and sentiment is not overly
positive. This is good news because it suggests that some
investors remain on the side-lines, ready to enter the market
when they are confident that the economy is on a clear upward
trajectory. A further positive for the market is an increase in
mergers and acquisitions activity, another sign of improving
sentiment. The recovery from the low reached in early 2009 is
nearly five years old but previous bull markets have lasted longer
than this and I believe stock markets look capable of continuing to
climb a “wall of worry”.
Important information: When investing in overseas markets,
changes in currency rates may affect the value of your
investment. Investments in small and emerging markets can be
more volatile than those in other overseas markets.
80
60
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Thomson Datastream. 14.1.14
Past performance is not a guide to future returns.
Performance over five years
2009
2010
2011
2012
2013
FTSE 100 (without income reinvested)
22.1%
9.0%
-5.6%
5.8%
14.4%
FTSE 100 (with income reinvested)
27.3%
12.6%
-2.2%
10.0%
18.7%
Source: Thomson Datastream, 31.12.08 to 31.12.13. Performance of the FTSE 100 index, with and without
income reinvested.
Select List funds
Global Equity
BNY Mellon Long Term Global Equity
Ecclesiastical Amity International
FC Stewardship International
Fidelity MoneyBuilder World Index*
MG Global Growth
Rathbone Global Opportunities
Schroder Global Climate Change
Templeton Growth
Global Equity Income
Aberdeen World Equity Income
Lazard Global Equity Income
Newton Global Higher Income
Sarasin Global Higher Dividend
*This fund replicates the performance of the MSCI World Index
4

5. Bonds
Bonds underperformed equities significantly in 2013. I expect
more of the same in 2014. While bonds continue to provide useful
diversification and can be a good source of income, investors
would be unwise to view them as risk-free now that the next move
in interest rates is, at some point, likely to be upwards.
With the unemployment rate approaching the threshold set by
Bank of England governor Mark Carney last summer, the turn
in rates may be sooner than some investors have expected.
He has made it clear that the 7% jobless rate is merely a “way
station” on the road to higher interest rates but higher yields
remain a threat to fixed-income investors.
Investors who wish to have some fixed income in their
portfolios should look to strategic bond funds, which can move
investments between different types of bond – government,
corporate, high yield and inflation linked. There are a number of
general global and strategic bond funds available on the The
Select List which are listed below.
Select List funds
UK unemployment falling towards Bank of
England threshold
Global Aggregate
8.5%
Newton Global Dynamic Bond
MG Global Macro Bond
UK unemployment rate
Threadneedle Global Bond
8.0%
7.5%
Strategic Bond
7.0%
Henderson Preference and Bond
6.5%
Legal General Dynamic Bond Trust
6.0%
MG Optimal Income
5.5%
UK Aggregate
5.0%
4.5%
Fidelity Strategic Bond
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Henderson Sterling Bond
Source: Thomson Datastream, 14.1.14
Past performance is not a guide to future returns.
Important information: For funds that invest in bonds, please be aware that the price of bonds is influenced by movements in interest
rates, changes in the credit rating of bond issuers, and other factors such as inflation and market dynamics. In general, as interest
rates rise the price of a bond will fall. The risk of default is based on the issuer's ability to make interest payments and to repay the
loan at maturity. Default risk may therefore vary between different government issuers as well as between different corporate issuers.
The investment policy of Fidelity Strategic Bond Fund means it can be more than 35% invested in government and public securities.
These can be issued of guaranteed by other countries and governments. For a full list please refer to the fund's prospectus.
5

6. Property
Within commercial property, we see a marked difference in
the value offered by prime real estate and properties in less
fashionable locations. In a generally risk-averse environment,
investors have preferred to shelter in perceived safe havens
and this has resulted in yields falling (and so prices rising) for
prime properties and higher yields (and so lower prices) for
secondary sites. During the second half of 2013, the yields on
secondary property began to fall back a little but we believe
this process has some way to run.
Residential property only back to 2007 level
Secondary property yields have a long way to fall
150
% spread over UK 10 year Gilts
10
190
UK House Price Index
180
170
160
140
UK Corporate Bonds
UK Secondary Property
8
130
UK Prime Property
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
6
Source: ONS, Thomson Datastream, 14.1.14
4
Past performance is not a guide to future returns.
2
0
Sep-13
Sep-12
Sep-11
Sep-10
Sep-09
Sep-08
Sep-07
Sep-06
Sep-05
Sep-04
Sep-03
Sep-02
Sep-01
Sep-00
Sep-99
-2
Select List funds
Property - Listed
Source: Fidelity, CBRE, 29.11.13
Aberdeen Property Share
Past performance is not a guide to future returns.
Fidelity Global Property
Within the residential market, there is increasing talk of a
bubble forming. Outside the most popular areas of central
London this probably overstates the position, with prices in
many cases still no higher than at the previous peak before
the financial crisis. With government policy likely to remain
supportive ahead of an election in 2015, house prices will
remain well underpinned over the next year.
MG Global Real Estate Securities
Property - Physical
HSBC Open Global Property
Ignis UK Property
Important information: Some funds in the property sector invest in property and land. These can be difficult to sell so you may not
be able to cash in this investment when you want to. There may be long delays in acting on your instructions to sell your investment.
The value of property is generally a matter of a valuer's opinion rather than fact. When investing in overseas markets, changes in
currency rates may affect the value of your investment.
Commodities
While it is unwise to generalise about an asset class which
includes such diverse investments as energy and both precious
and industrial metals, we believe commodities as a whole
remain unattractive. A rising dollar, which looks likely in 2014,
is generally bad for assets priced in the US currency; demand
from China, an important factor, looks likely to moderate as
the Chinese economy rebalances away from investment and
exports towards domestic consumption; and there remains an
overhang of excessive investment in new capacity by the mining
majors which new management in all the largest companies
is only beginning to unwind. Gold has proved that it cannot be
relied on as a safe haven. With no income to underpin its value,
gold is best left to specialists.
6
Select List funds
Commodities - General
First State Global Resources
Martin Currie Global Resources
Commodities - Precious Metals
BlackRock Gold and General
Investec Global Gold

7. Equities – a regional perspective
US
We remain positive on the outlook for US shares, despite a 30%
rise in the value of the SP 500 during 2013. Arguably the US
economy is in a healthier position than for many years.
US share valuations below peak levels
and a source of increased competitiveness for American
industry. Other clear positives include an improving housing
market and rising employment levels. While US shares are quite
highly valued compared to other major markets, momentum is
behind the market.
35
Shares do not usually rise to fair value and then stop. Historically
they have tended to carry on until they are obviously overvalued
and we remain some way off that position today.
US Price/Earnings
Price/Earnings Ratio
30
25
20
Select List funds
15
10
North America
5
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
AXA Framlington American Growth
Source: Thomson Datastream, 14.1.14
Fidelity Funds America
Past performance is not a guide to future returns. When
investing in overseas markets, changes in currency
exchange rates may affect the value of an investment.
HSBC American Index
The gap between tax revenues and government spending (the
budget deficit) and between imports and exports (the trade
deficit) has diminished rapidly. This is a positive for the US
dollar, which in turn makes US assets more attractive as a store
of value for investors. One of the reasons for the improving
economic position is the positive influence of the energy
revolution driven by the discovery and exploitation of Shale oil
and gas. This is a key driver of the US’s improving trade balance
Schroder QEP US Core
JPM US Select
Old Mutual North American Equity
North America Small/Mid Cap
BlackRock US Opportunities
JPM US Smaller Companies
7

8. Japan
The importance of the exchange rate to the
Japanese market
125
2000
120
1800
115
1600
110
105
1400
100
1200
95
90
1000
85
800
80
600
75
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Japanese Yen to US$
TOPIX – Price Index (right hand scale)
Source: Thomson Datastream, 14.1.14
Past performance is not a guide to future returns.
When investing in overseas markets, changes in currency
exchange rates may affect the value of an investment.
Performance over five years
2009
TOPIX Index
2010
2011
2012
2013
-6.7%
19.5%
-11.8%
2.8%
24.6%
Source: Thomson Datastream, 31.12.08 to 31.12.13, with income reinvested in £ terms
Although there remain some residual concerns about the
impact of the forthcoming hike in Japan’s sales tax in April, we
remain confident that the Government will do what is necessary
to return the country to growth. With so many international
investors on the side-lines, the potential exists for a rise in
Japanese share prices to become self-fulfilling.
We are positive about the outlook for Japan in 2014. Japan
has long been a frustrating market for investors – almost
the definition of a false dawn. However, that changed with
the election in late 2012 of Prime Minister Shinzo Abe, who
promised to restore Japan’s fortunes through a combination
of monetary and fiscal easing and structural reforms – known
collectively as his “three arrows”. The first two of these have
already started to exert a positive influence on the Japanese
economy and they were largely responsible for the strong
rally in the Nikkei index in the first half of 2013. The pause for
breath in the second half of the year reflected concern that
the third arrow – structural reforms such as reducing import
tariffs and increasing female participation in the workforce
– would prove to be tougher nuts to crack. However, rising
business confidence, increasing property prices and higher
wages are signs that the long fight against deflation may be
winnable. Investors including the Government’s own pension
fund are starting to encourage companies to focus on improving
shareholder returns. A weakening yen is supporting Japan’s big
exporters and looks likely to continue doing so this year.
8
Select List funds
Japan
Aberdeen Japan Growth
Baillie Gifford Japanese
HSBC Japan Index
Jupiter Japan Income
Old Mutual Japanese Select
Schroder Tokyo
Asia-Pacific incl Japan
Aberdeen Asia Pacific and Japan
Fidelity Funds Pacific
Smith Williamson Far Eastern Growth Trust

9. UK
We like the UK but not as much as the US or Japan. The
outlook for the UK stock market is confused by the fact that it
is a notoriously poor reflection of the state of the UK economy.
Were it more closely linked to the health of UK plc then the
outlook for UK shares would be unequivocally good.
The British economy has surprised most observers on the
upside over the past year and yet the outlook for interest rates
remains benign – a powerful combination. That “Goldilocks”
scenario looks likely to persist, with inflation in check and
economic growth expected to match that in the US and outpace
the rest of Europe by a healthy margin. The extent to which this
will be reflected in the stock market is limited by the relatively
high overseas exposure of UK-listed companies.
The prices of the biggest companies are governed as much
by global growth prospects as the UK outlook. Also, for the
more domestically-focused mid- and small-cap companies the
good news is already fairly well reflected in valuations – the
FTSE 250 has outperformed the FTSE 100 by a large margin in
recent years.
UK mid-caps have outperformed the blue-chips
Select List funds
UK Equity
AXA Framlington UK Select Opportunities
Ecclesiastical Amity UK
Fidelity UK Select
HSBC UK FTSE 100
HSBC FTSE All-Share
Jupiter UK Special Situations
Kames Ethical Equity
Liontrust UK Growth
UK Equity Income
Artemis Income
Fidelity MoneyBuilder Dividend
Henderson UK Equity Income
280
JOHCM UK Equity Income
260
Liontrust Macro Equity Income
240
220
UK Small/Mid-cap Equity
200
HSBC FTSE 250
180
Marlborough Special Situations
160
Old Mutual Smaller Companies
140
120
Royal London UK Mid-Cap Growth
100
Threadneedle UK Mid 250
80
60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
FTSE 100 – Price Index
FTSE 250 – Price Index
Source: Thomson Datastream, 14.1.14
Past performance is not a guide to future returns.
Performance over five years
2009
2010
2011
2012
2013
FTSE 100
27.3%
12.6%
-2.2%
10.0%
18.7%
FTSE 250
50.6%
27.4%
-10.1%
26.1%
32.3%
Source: Thomson Datastream, 31.12.08 to 31.12.13 with income reinvested
A further drag on UK earnings could be caused by any
appreciation of the pound against the euro, which seems
possible given the likely easier monetary policy in the Eurozone
over the medium term. Investment in the UK should focus on
larger companies. Their valuations have some catching up to do
and blue-chip shares are well supported by attractive dividend
yields in many cases.
9

10. Europe
Shares in Europe enjoyed a strong year without the obvious
positive economic drivers seen in the US and Japan. The rally
was not driven by better earnings so much as relief that the
worst of the Eurozone crisis appeared to be in the past and
the anticipation of improved economic conditions to come. The
long-term outlook for Europe remains difficult, however, as the
slow drift towards greater political and economic integration
continues. Moreover, because profits in the region held up
pretty well during the financial and sovereign debt crisis (thanks
to a high proportion of sales outside Europe and effective
cost‑cutting) there is arguably less scope for earnings to rise
sharply from here.
Select List funds
Europe (excl UK)
BlackRock Continental European
Henderson European Special Situation
HSBC European Index
Jupiter European Special Situations
Schroder European Alpha Plus
Poor demographics and, potentially, a resurgent competitive
threat from Japan and the US (thanks to Shale) are further
elements in the negative case against Europe. So, too, are signs
of a slowdown in demand in some key emerging markets. It is
foolish to generalise about such a diverse group of countries
and there are clearly pockets of value and very many worldclass companies for stock-pickers to focus on. However, the
region as a whole does not look particularly compelling after
last year’s gains.
Threadneedle European Select
Single Country Europe
Baring German Growth
Fidelity Funds Germany
Fidelity Funds Italy
China
The new leadership in Beijing has put in place a number of
reforms which point China in the right direction on a number
of social, economic and financial fronts. In the longer-term it is
engaged in an important rebalancing of its economy away from
exports and investment towards domestic consumption which will
improve the quality and sustainability of its growth.
Taking a longer-term view, it is hard not to argue for a
reasonable exposure to the world’s fastest-growing major
economy, a country with a powerful entrepreneurial spirit and a
determined Government. The current historically low valuations
make this a good contrarian moment to invest in China.
Important information: When investing in overseas markets,
changes in currency exchange rates may affect the value of an
investment. Investing in small and emerging markets can be
more volatile than those in other overseas markets.
10
China’s valuation advantage
18
16
14
Price/Earnings Ratio
China has been a powerful reminder over the past few years
that economic growth and stock market performance are
not necessarily closely correlated. The Shanghai market has
underperformed sharply even as growth has continued to
outstrip that in the world’s other large economies. China has
fallen out of favour with investors, both at home and
internationally, and its shares now trade well below their longterm average valuation. There remain plenty of things to worry
about in China, but many of these, such as the prospect of a
Western-style banking crisis are almost certainly overdone.
12
10
8
6
4
2
0
China
Korea
Japan
US
Source: Macquarie, Fidelity, December 2013
Select List funds
Emerging Markets Regional Equity (China)
Fidelity Funds Greater China
Schroder ISF Greater China
UK

11. Asia ex-China, ex-Japan
If it is difficult to sensibly generalise about Europe, it is even
more so in Asia. At the moment there appears to be a divide
between northern Asia, where the outlook looks better than
valuations would suggest and the ASEAN countries in the south
of the region where more is already priced in and the outlook
is clouded by the likely continued tapering of monetary stimulus
by the Federal Reserve. South Korean shares have been
undermined by the posturing of its neighbour in the north and
the perceived threat of a weaker yen in Japan.
The country is home to some of the world’s best brands in
electronics and the automotive sector and it stands to be a big
beneficiary of recovery in the West. Despite this valuations are
low. Taiwan, technological workshop of the world, is also well
placed for a period of innovation and growth in developed
markets. In the south of the region, the ASEAN growth story
is real but it is well known, in particular to foreign investors.
In addition to higher valuations, the Fed’s taper means that
money will increasingly look to return to the US from Asia, which
could expose those countries most in need of foreign liquidity.
A good long term story, but 2014 might not be the best year to
be invested in the region.
Select List funds
Asia-Pacific ex-Japan
Aberdeen Asia Pacific
Fidelity South East Asia
First State Asia Pacific Leaders
HSBC Pacific Index
MG Asian
Newton Asian Income
Schroder Asian Alpha Plus
Other emerging markets
Emerging markets fell out of favour in the second half of 2013
after it became clear that the US was considering a reduction
in its programme of monetary stimulus via quantitative easing.
Investors worried in particular about those countries that were
most dependent on external investors to fund their economies
and those which had raised debts in foreign currencies. With
the US “taper” now underway, those fears are likely to persist
through 2014, providing a headwind for emerging market
equities and currencies.
Weaker currencies are not necessarily a bad thing, if they
increase the competitiveness of a country’s exports. But not
all emerging markets will benefit from this, especially those
dependent on selling commodities, and weaker currencies
will reduce the ability of consumers to buy imported goods.
There remain good opportunities for stock‑picking in
emerging markets, with strong growth in particular areas and
industry winners that are able to capitalise on that growth.
Overall, however, 2014 is likely to be another challenging year
for many emerging markets.
Select List funds
Emerging Markets
BlackRock Emerging Markets Equity Tracker
Fidelity Funds Emerging Markets
JPM Emerging Markets
Lazard Emerging Markets
Threadneedle Global Emerging Markets
Emerging Markets Regional Equity
(excl China)
Fidelity Funds Latin America
Franklin India
Schroder ISF BRIC
Threadneedle Latin America
11

12. Bonds – in focus
The dog that didn’t bark in 2013 was the widely expected Great Rotation from bonds to equities. Bond prices held up better than
pessimists predicted and they could continue to do so in 2014. What is extremely unlikely, however, is that the capital value of most
bonds will rise this year so the risks for investors are unbalanced – the upside is probably limited to a return driven almost wholly by
income while the downside could include price falls if there is a rapid withdrawal of money from the asset class. We prefer strategic
bond funds, which are best placed to protect investors from losses and to secure the best returns from the higher-yielding parts of
the fixed income universe.
Government bonds
Highly-rated Government bonds had a difficult 2013, with yields
rising after the Federal Reserve hinted that monetary stimulus
would start to be unwound.
Government bonds have already corrected
They may rise a bit further, but in the absence of either much
stronger growth or inflation there is no reason to believe that
they will increase sharply in 2014. Governments look unwilling to
tolerate a material rise in yields, and interest rates will therefore
stay low, so this year should see Government bonds tread water.
6.0%
5.5%
5.0%
Select List funds
4.5%
4.0%
3.5%
3.0%
UK Government Bond
2.5%
Allianz Gilt Yield
Henderson Institutional UK Gilt
2.0%
1.5%
UK Government Bond Yield
1.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
HSBC UK Gilt Index
Royal London UK Government
Source: Thomson Datastream, 14.1.14
Past performance is not a guide to future returns.
High yield bonds
This looks the most interesting part of the fixed income universe
due to the higher yields available from the slightly less blue-chip
companies issuing these bonds and the support provided by a
healthier economic backdrop. Income seekers will continue to
chase yield in 2014, offsetting any upward pressure on yields
that might be passed on from higher Government bond yields.
Inflation-linked bonds
The longer that quantitative easing continues, the greater the
risk of a policy error leading to resurgent inflation. This is not
an issue at the moment, and may well not be during the whole
of 2014. However, as the tail-risk of a price spiral increases,
inflation-linkers look more interesting.
Select List funds
Select List funds
European High Yield
Global Inflation-Linked
Fidelity Funds European High Yield
Fidelity Global Inflation-Linked Bond
Invesco Perpetual European High Yield
Standard Life Global Index Linked Bond
MG European High Yield
UK Inflation-Linked
Global High Yield
Henderson Index-Linked Bond
Baring High Yield
Legal General All Stocks Index Linked Gilt Index
Investec Monthly High Income
MG Index-Linked Bond
JPM Global High Yield
12

13. Investment grade bonds
The gap between Government bond yields and those offered by
higher-quality corporate bonds provides enough compensation
for the extra default risk taken by investors.
The narrowing gap between corporate and
government bond yields
45%
However, the expectation of further falls in yields (and so rises
in corporate bond prices) looks unrealistic. This means income
will be the major contributor to total returns and investors will
rightly question whether they cannot achieve a similar yield from
higher-yielding equities which also offer the prospect of dividend
increases over time.
High Yield Bonds
Investment Grade Bonds
40%
30%
Select List funds
25%
European Corporate Bond
20%
Fidelity Funds Euro Corporate Bond
15%
MG European Corporate Bond
35%
10%
UK Corporate Bond
5%
Baillie Gifford Corporate Bond
0%
2009
2010
2011
2012
2013
Source: Thomson Datastream, 14.1.14
Past performance is not a guide to future returns.
BlackRock Corporate Bond Tracker
Henderson Strategic Bond
MG Strategic Corporate Bond
13

14. Investment risks in 2014
With growth underway, valuations reasonable, sentiment
cautious, policy supportive and inflation under control, the
investment outlook is positive. The principal risk in such a benign
scenario is for markets to be unsettled by an unexpected geopolitical event. Obvious candidates include an escalation of
tension between Japan and China, excessive posturing by North
Korea or a flashpoint in the Middle East.
The financial risks look less likely: perhaps an escalation of the
Eurozone crisis from an unexpected quarter such as France.
Interest rates could begin to rise more quickly than anticipated in
either the UK or US. The proposed sales tax hike in Japan could
disrupt retail sales as an earlier tightening did in 1997. Inflation
could accelerate.
Select List funds
Select List funds not mentioned in this
quarter’s Investment Outlook
Global Real Assets
Fidelity Funds Global Real Asset Securities
First State Global Listed Infrastructure
Sarasin Agrisar
None of these seems particularly likely at this stage but that is
the nature of tail risks. They come out of nowhere.
Emerging Markets Local Currency Bonds
In fact, I think the greatest risk to my outlook is the most
mundane of all – that investors simply decide that company
profits are not rising quickly enough to justify today’s
higher valuations.
Pictet Emerging Local Currency Debt
14
Investec Emerging Markets Local Currency Debt
Templeton Emerging Markets Bond

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Source: Fidelity as at 31.12.13
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