Equities - long term.
The stock market, much maligned animal that it is, is in its glory once you start talking long term. Over long stretches it comes up trumps over all other investments, yielding, for example, 14% per annum over the past 25 years. Warburg's George Hodgson points out that in the past 10 years growth hit 22% per annum compared with property at 14%. From today's miserable jump-off point the two to five-year view looks good: the market is cheap and could even get cheaper. A prolonged recession cannot be ruled out, but if one chooses sturdy stocks at good prices, that means only a delay in the returns. Investment trusts (many now at a good discount to asset value) and unit trusts are alternatives to direct investment.
Few advisers care to forecast five years ahead, but with excitement on so many fronts - the Single European Market, Eastern Europe, the growth of the Pacific Rim, the boom in international trade and communications, the growth of new technologies and the shift of the baby boomers from consumption into savings mode (meaning cheaper capital) - it is hard not to expect steady growth in the 1990s, once the bleakness recedes.
Nomura's Ishibashi expects higher interest rates in the next decade "because there will be a higher economic growth rate and governments will not want inflation to get away". Thus stock price growth will be more moderate. He likes the racy areas: electronics, telecommunications, pharmaceuticals, software and banking, but with the caution: "Go for the market leader and diversify geographically."
Gartmore director Tony Thomson too is "very optimistic" long term. Reflecting this, his funds have been "fairly aggressive" on equities. Real dividend yields on equities worldwide are high and he believes that "much of the recession is in the price of securities already".
Long-term favourites put the onus on muscle power and track record. The Schroders team tips companies with international distribution networks, which can market not only their own but also other companies' products - groups like THORN EMI, Dixons and Gestetner. On the leisure side the new bulge in the older age group speaks well for capable holiday and hotel operators, perhaps Airtours and Queens Moat Houses. Out of favour now, but with good promise, suggests Warburg's Stephen Carr, are TI Group (engineering), British Steel, P and O and Reuters. Hoare Govett's Simon Clegg thinks that even the finicky oil sector has good prospects, as "it's fixed in everyone's minds that oil comes from an area that is intrinsically unstable". Environmental stocks get a hesitant "yeah". It is very tricky to pick the winners.