What a difference 12 months makes. This time last year, bullish forecasters were competing to outdo each other with their predictions for the outperformance of UK equities in 2014; Goldman Sachs looked forward to a year-end FTSE 100 index valuation of 7500, while Citigroup predicted 8000.
As we now know, their optimism proved unfounded, and a year on, most equity analysts are far gloomier about the outlook for 2015.
The good news is that the consensus forecast from analysts is that 2015 will see the FTSE 100 index finally break through its all-time high of just over 6930, set on the final day of 1999. But don't get too excited: very few expect the new high to beat the previous record by much.
A recent Reuters poll of 50 traders, fund managers and strategists pointed to a mid-2015 valuation of 7100 for the FTSE 100, which would represent a 5 per cent gain over the seven months from mid-November - solid, but hardly spectacular.
It is possible to find more optimistic forecasts. For example, Credit Suisse reckons the FTSE 100 could reach 7500 by the middle of next year, though it then expects retrenchment in the second half, with a year-end prediction of 7300.
John Higgins, chief markets economist at think tank Capital Economics, goes further, suggesting 7750 is possible this time next year, though he cautions: 'While the prospects for earnings and valuations lead us to be optimistic about the UK stock market's relative prospects, we suspect its absolute gains will be limited.'
On the other hand, leading fund managers are nervous. At Fidelity, asset allocation director Trevor Greetham warns: 'We are cautious on UK equities in a global context.' At EFG Asset Management, Hilary Wakefield, head of portfolio management, concurs: 'We have been taking money off the table in the UK.'
Income-seeking investors may find the going particularly tough. Registrar group Capita is warning that dividend payments by UK-listed companies are set to fall by as much as 11 per cent next year, against disappointing earnings growth.
There are many clouds on the horizon. First, there's the issue of the global economic outlook, with fears of a new slowdown increasing by the day amid disappointing reports from Japan, leading emerging markets, and above all the eurozone, which is now once again flirting with recession.
The latter in particular is a major problem for the UK, points out Mark Barnett, head of UK equities at Invesco Perpetual. 'Europe is our biggest trading partner and the softening of its economy may impact negatively on UK company earnings,' he says.
For companies with a more domestic focus, meanwhile, the problems facing UK consumers will be front of mind. While the headline economic performance of the UK has been relatively impressive this year, growth in real incomes has been disappointing, with pay rises generally failing to keep pace with inflation.
Nor is there much respite in sight for consumer spending, particularly if the Bank of England's Monetary Policy Committee (MPC) finally begins to raise interest rates next year.
May's general election is another factor throwing doubt into the mix for UK equities in 2015 - not least because the outcome is difficult to predict.
Mike McCudden, head of derivatives at our sister website Interactive Investor, thinks the FTSE 100 could hit 7250 by the middle of next year, but warns investors not to expect much action before polling day. 'Markets are usually cautious ahead of an election, when the uncertainty of a result drags on performance,' he says.
That uncertainty is particularly acute this time around, because while the economic policies of the three main parties are not dissimilar - and none would spook the markets - the election could set in train a series of events that culminates in the UK's withdrawal from the European Union. The torrid debate about the implications of such a move will give many investors pause for thought.
If the economic backdrop provides reason to be fearful, can investors at least take solace in valuations after the disappointing performance of UK equities in 2014? Not really, says Barnett.
'I believe the overall market valuation is fair value, bordering on expensive,' he adds. 'It doesn't necessarily indicate bad returns going forward, but suggests that returns will be more modest when compared to the last two or three years.'
It's not all doom and gloom, however. After all, the UK's economic performance has been more resilient than many analysts expected, with a strengthening recovery that has proved sustainable even during the global slowdown we have already seen this year.
Moreover, the significance of some of the potential difficulties to come should not be overstated. On monetary policy, for example, the MPC's recent minutes give no reason to think an interest rate rise is imminent. And once rates do start rising, few economists expect anything other than a small and gradual increase in the cost of borrowing.
Equally, the outlook for consumer spending is brightening by the day: inflation is muted - the prices of essentials such as fuel and foods have even been falling in recent months - and earnings growth has finally begun to pick up. Employment remains strong too.
Also the global picture may not be as depressing as it might first appear, especially given the willingness of central banks to intervene.
'I think that 2015 will be generally positive,' says Richard Perry, an analyst at Hantec Markets. 'I believe the US will raise rates due to continued improvement in the economy, but this will not be deemed as too much of a negative while the economic recovery continues, and I also believe that European Central Bank quantitative easing will help to drive European markets higher.'
This is the case made by stock market bulls. It rests on the assumptions that the global monetary authorities will continue to support their economies, contagion from those economies in the worst state will be limited, and consumer spending in the UK will prove sustainable. These are big ifs, of course, and the progress of equity markets is unlikely to be smooth, whatever their overall direction.
Still, Mark Burgess, chief investment officer of Threadneedle Investors, urges investors not to panic. 'We would not rule out some further short-term pain as earnings expectations recalibrate, but we would note that investors who have held equities continuously over the past three years have still enjoyed local currency total returns of over 60 per cent in the US and over 30 per cent in the UK,' Burgess says.
'Moreover, if markets do become more dovish on the outlook for short [-term interest] rates, as now seems likely, then equities, as the ultimate long-duration asset, should be among the beneficiaries.'
Passive routes to buy the region
As well as some of our favoured actively managed funds and trusts, which we outline in our Rated Funds sections, you can find a few cheaper passive versions below.
The simplest option for investors looking for low-cost passive exposure to the UK market is an index tracking open-ended fund. 'We're currently recommending Vanguard FTSE UK Equity Index, which has total ongoing costs of 0.08 per cent a year and tracks the FTSE All-Share index, which we consider to be a better proxy for UK equity returns than the FTSE 100,' says Martin Bamford, a chartered financial planner at IFA Informed Choice. 'Another good choice is the Fidelity Index UK fund, with ongoing charges of 0.07 per cent, also tracking the FTSE All-Share.'
Exchange traded funds also provide passive exposure to UK equities. The plain vanilla choices include the Vanguard FTSE 100 ETF, which tracks the blue-chip index at an ongoing cost of 0.09 per cent a year. But there are variations on the theme for investors seeking a particular type of exposure.
Adam Laird, head of passive investments at Hargreaves Lansdown, suggests the iShares UK Dividend Ucits ETF, which tracks the FTSE UK Dividend Plus index. 'The index includes the 50 highest-yielding stocks within the FTSE 350, weighted so the companies with the highest forecast yields represent the largest proportion of the index,' Laird explains.
Another option, suggests Jason Butler, chartered financial planner at IFA Bloomsbury Wealth, is a 'smart beta' ETF. These funds track indices created specifically to offer investors a certain type of equity market exposure. 'They have a higher risk/reward profile than traditional index funds,' explains Butler, who likes the range managed by Dimensional Fund Advisors.
Finally, says Christian Gardner, investment analyst at Lowes Financial Management: 'Index-participation structured products are a low-cost and effective way of achieving passive performance and can result in significant outperformance while protecting against all but the most extreme falls.'
Gardner particularly likes two six-year products, Société Générale's UK Growth Plan Issue 4 and Morgan Stanley's FTSE Defensive Super Tracker Plan 7, both of which track the FTSE 100 and cap gains and losses.
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