Generous stimulus conditions made 2013 a good one for stocks. Fears of US tapering hit markets in June, but by 10 December the FTSE 100 was up by more than 11% on the start of the year.
Against this, five of the City experts who contributed a ‘personal view’ column over the year recorded gains of more than 40% – in 2012 only one managed the same feat. Top billing goes to Mark Costar, whose small-cap picks rose 58% from March.
Our top ten analysis is in no way scientific. The tips are all given at different times of the year, so some have a big advantage over others. We ask for long-term ideas, whereas our calculations are just a snapshot taken over a short period. And we only take capital gains, ignoring dividends.
With that in mind, below we review our top tipsters’ performance and find out where they stand on their 2013 tips and what their best ideas are for 2014.
Senior fund manager, JOHCM UK Growth Fund
CSR (up 15% since tipped in March) is well-placed to benefit from developments in device-to-device communications – the “internet of things” – says Costar. Cooker maker Aga Rangemaster (up 87%) is benefiting from launching new products, and selling more abroad, as well as seeing its domestic UK market pick up.
Gresham Computing (up 73%) has had a breakthrough year with its software that lets financial institutions better to monitor cash flow. It recently raised capital to invest in staff and infrastructure to cope with demand. All remain “clear buys”.
For 2014, Costar likes Dolphin Capital (LSE: DCI). The company has a portfolio of luxury properties, capitalising on the growing global segment of ultra-high-net-worth individuals. The shares trade at a considerable discount, given the potential for growth and future cash returns.
Co-manager, Unicorn Free Spirit Fund, Unicorn Asset Management
Digital marketing group dotDigital (up 71% since August) remains one of Mackersie’s top holdings. It is trying to expand in America. “If it gets any kind of traction there, that would be pretty exciting.”
He also still holds ticketing group Accesso (formerly Lo-Q), which rose 79%. However, Perform Group (up 10% to 10 December) has suffered a huge profit warning since the cut-off date on our survey, and has been sold – showing the risks in both small stocks and arbitrary cut-off dates.
For 2014, Mackersie likes financial software and services group First Derivatives (LSE: FDP), which should see the benefit of a deal to supply Australia’s financial regulator, the Australian Securities and Investments Commission.
Manager, BlackRock Smaller Companies Trust
Broker Charles Stanley (up 45% since February) has grown assets under management well and has a lot of cash on its balance sheet. It is expanding its new online platform, which will allow private individuals to invest at a relatively low cost, says Prentis.
Luxury furnishings group Walker Greenbank (up 92%) still has the capacity to grow sales internationally. And while electronics group TT electronics (up 16%) needs to improve its profit margins, it recorded encouraging sales growth in the quarter to 31 October and is well priced on 12 times 2014 earnings.
Prentis’s preferred tip for 2014 is Avon Rubber (LSE: AVON). It’s one of his tips from 2013 (up 36% since he tipped it), but he thinks it has further to go. Full-year results showed organic revenue growth of 17%, while rubber manufacturers are benefiting from the improved fortunes of the dairy business and a greater presence in the defence sector.
Fund manager, Henderson UK Equity Income fund
Henderson’s three tips all did well, and he’s sticking with them for 2014 too. Aerospace companies have benefited from robust demand in 2013, benefiting both components manufacturer GKN (LSE: GKN, up 54% since January) and engineer Rolls-Royce (LSE: RR, up 33%). The latter has delivered consistent earnings growth, announcing another significant order last month.
Henderson is also sticking with his final pick, car and bicycle accessories retailer Halfords (LSE: HFD), which is up 49%.
Co-manager, US Smaller Companies Fund, Brown Advisory
Digital marketing company ExactTarget (up 49% since March) was bought by Salesforce.com, but holiday rentals website HomeAway Inc. (up 28%) and call-centre software group Interactive Intelligence Group (up 46%) remain independent, and Berrier believes they should see solid gains in 2014.
HomeAway has recently bought Australia’s leading holiday rentals site, the Stayz Group, boosting its presence in the Asia-Pacific region. The business has strong momentum, leaving “room for upside”.
Interactive Intelligence Group, meanwhile, is inexpensive compared to its peers and looks set for strong sales and profits growth “as the leading provider of communications-as-a-service software”.
For 2014, Berrier likes sportswear group Quiksilver (NYSE: ZQK), whose brands include Quiksilver, Roxy and DC. Under new management it is “embarking on a multi-year restructuring plan that should not only slash costs and boost margins”, but also boost sales through more effective marketing and wider distribution.
Managing director, Neev Capital
Sharma – in our top ten for the third year – still backs all three of his picks. Advertising group M&C Saatchi (up 22% since July) should do well out of the industry disruption caused by this year’s merger of sector giants Publicis and Omnicom: “a big push into online and emerging markets should mean it will grow much faster than larger peers”.
Luxury goods maker Mulberry (up 7%) hasn’t quite met his expectations yet, but it is making its brand more upmarket and also “more available in emerging markets. This will clearly take time, but the rewards are significant.”
But for 2014 his key tip is Blur Group (up 68% since he last tipped it). Blur “aims to transform the way businesses buy services… just as eBay and Amazon did for consumers” and is set to do more business in its fourth quarter alone than it did in the first nine months of this year.
Senior fund manager, JOHCM Global Emerging Markets Opportunities Fund
Syme is still bullish on all three tips he offered in September. Tata Motors (up 44%) has benefited from a strong performance by its subsidiary Jaguar Land Rover (JLR) – last month, JLR’s net profits for the quarter beat estimates by 39%.
But for 2014 he highlights his other two 2013 tips. South Korean electronics giant Samsung (LSE: SMSN, up 11%) should continue its run well into 2014. Its semi-conductor business is leading its growth, but smartphone sales are still expanding too.
Founder and managing partner of OrbiMed Advisers LLC
Isaly was unfortunately unable to get back to us on his tips. In a good year for biotech generally, Swiss pharmaceuticals giant Roche climbed 21% from when it was tipped in February, while Onyx Pharmaceuticals rewarded investors with a 60% capital gain when it was bought out by biotech heavyweight Amgen in late summer. His final tip, biopharmaceutical group Gilead Sciences, was the only faller, down 6%.
Fund manager, Chelverton Asset Management
Taylor is hanging on to advertising group UTV Media (up 35% since April). He also continues to like marketing services group St Ives (up 30%).
He believes that the UK will be a good economy to have exposure to in 2014, and both of these companies should benefit from any improvement in the British economy.
On top of that, UTV should also benefit from the pick-up in advertising spending likely to come from the World Cup being held this year.
Taylor’s other tip, legal and professional services group Abbey Protection (up 4%), meanwhile, is the subject of an agreed bid from US insurer Markel, and Taylor is just ‘waiting for the cash to arrive’.
Manager, Royal London UK Equity Income Fund
Cash’n’carry group Booker (up 33% since May) and newsagent chain WH Smith (up 34%) have steadily outperformed the wider market, and Cholwill sees no reason for this to change.
The market is uncertain on utility giant United Utilities (down 13%), as the industry is reaching a critical period in its five-year regulatory review, but he suggests holding, as the company “has put forward a politically aware business plan” and the regulator Ofwat is likely to “balance the needs of all stakeholders” when it reviews this. Also “customer price rises below inflation are not incompatible with growing shareholder dividends”.
Cholwill expects merger and acquisition activity to grow in 2014, and for quality mid-cap companies with strong market positions to do well. Examples include industrial valves maker Spirax-Sarco (LSE: SPX), precision instruments manufacturer Spectris (LSE: SXS) and safety equipment group Halma (LSE: HLMA).