Investment strategies for 2015

Amid a global economic slowdown and a low interest rate environment, there are still many ways to make money in the new year.

In a low-growth world in the developed markets and decreasing growth rate in emerging markets, there may be an opportunity in small cap stocks, said Ronald Temple, managing director and portfolio manager/analyst with Lazard Asset Management, at PMAC’s national conference in Toronto on Tuesday.

“Because even if the world isn’t growing very much, you can always find small companies that grow,” he explained.

Read: Opportunities in global small cap

Another strategy is using a concentrated stock portfolio of around 20 stocks instead of about 90 or so. He notes that there’s been a lot of demand for U.S. concentrated and international concentrated portfolios.

Global equities also present an opportunity, as there’s a long history of home-country bias in most countries. While passive investing may be fine in some markets, Temple advises against doing so in emerging markets.

Read: Investing in frontier markets

“You want to be active there because it’s the most inefficient market,” he said. “Because there are too many different countries with too many different tailwinds and headwinds at the same time.”

When it comes to income generation, there might not be as many opportunities. Still, Temple believes emerging market debt presents a good opportunity due to higher yields. But he’s not fond of developed market bonds because the risk/reward is too asymmetric.

Read: Bond ambition

Another possibility to generate income is through a global equity income strategy. Temple warns that this strategy might not work with U.S. stocks because this would include utilities and real estate investment trusts, which he believes are currently overvalued. But he notes many companies outside the U.S. pay dividends.

“I think you’re getting more and more opportunities in an equity portfolio to get yield without having to risk too much of your capital in terms of balance sheet risk.”

Four areas to watch

Temple gave an overview of four economies to keep an eye on over the next year. Here are the ones he highlighted:

United States — Economic growth is likely to be more subdued than predicted, while the middle class remains financially stressed and many American consumers aren’t confident about the economy or labour market.

China — The country’s growth rate is likely to decelerate. Also, wages are growing fast, and China is now competing more with developed markets than emerging markets.

Read: A guide to global investing: China

Eurozone — The area has stabilized, but growth remains elusive and risks years of stagnation. There are long-term political risks as anti-austerity and anti-eurozone parties have gained in popularity.

Japan — There is upside potential if Abenomics (i.e., boosting government spending, monetary easing and structural reforms) succeeds. However, the process will be long and difficult.

Read: A guide to global investing: Japan