Fund manager Wilson Asset Management runs three listed investment companies (LIC), the biggest of which is the $613 million WAM Capital Limited (ASX: WAM). Recently the manager came out with its four key equity themes for 2014.
Wilson Asset Management believes the following four themes will shape the equity market this year. If their predictions turn out to be accurate, investors who position their portfolios to benefit from the themes should stand a reasonable chance of outperforming the wider market.
1) Strong IPO market to continue – the initial public offering (IPO) of stocks increased by 17.8% in 2013, Wilson understands that there are a number of IPOs being readied for the first quarter of 2014 and the fund manager thinks the latest batch could be more keenly priced after the weak performance of IPOs that listed in the final few months of 2013.
2) Big year for M&A – Wilson expects merger and acquisition (M&A) activity to increase significantly. Low borrowing costs and strong balance sheets will make M&A opportunities attractive to many firms particularly in the small to mid-cap space. Wilson highlighted the recent battle for Warnambool Cheese & Butter Factory Co. (ASX: WCB) as an example.
3) Housing market to stay strong – with record low interest rates and increased competition amongst second-tier lenders, the fund manager sees increased incentive for homebuyers to take out mortgages.
4) Aussie dollar to continue its fall – 2013 saw the much anticipated weakening of the Australian dollar begin. Wilson expects further weakening in 2014 which should be a boost for companies such as foreign toll road operator Macquarie Atlas Roads Limited (ASX: MQA), which is held in WAM Capital's investment portfolio.
Foolish takeaway
One stock which stands out to me as benefiting in a number of ways from the four themes outlined above is Macquarie Group Ltd (ASX: MQG). The investment bank is a major player in both the M&A and IPO markets; has a number of overseas operating units which provides some exposure to benefiting from a weaker Aussie dollar; and has been strategically boosting its presence in the mortgage market.
