Mark Dampier: Good funds can thrive in new year

What an extraordinary year 2009 has been. In January I mentioned to a neighbour I would like to fast-forward to 2010 because I thought it was going to be so awful. Instead we have seen asset prices rise just about everywhere. Not only have equities and bonds responded to huge global stimulus, but so have classic cars, antiques, and fine wines. Why has this happened when the economic background in the UK and elsewhere still looks so poor? Quite simply it is because interest rates are so low. With the best instant access accounts in the UK offering in the region of 3 per cent, investors are desperately looking elsewhere for better returns.

As far as the UK is concerned I do not expect interest rates to go up in 2010. Instead I see a tough post-election budget dampening consumer spending, which will keep a lid on inflation. Furthermore, government stimulus measures will have to be withdrawn at some stage, and it is questionable whether there will be sufficient demand in the global economy to keep things ticking along. Politicians are still living in denial and there will also be some tough choices to make, especially in the public sector whose spending is, frankly, unsustainable.

However, the economy and the stock market are two very different propositions and, while it would be absurd to expect a repeat of 2009's performance, equities could do reasonably well despite a difficult economic backdrop.

Rather than dwelling too much on the economy, a recurring theme of this column is identifying the best fund managers, which I believe is the most productive way of capitalising on the opportunities of 2010 – just as it has been in 2009. This year the top-performing funds have been a widespread bunch reflecting sectors that rebounded strongly from a torrid 2008: commodities, UK smaller companies and certain emerging market funds. In fact, some were highlighted in this column, including CF Oceanic Australian Natural Resources, Neptune Russia, Standard Life UK Unconstrained and JPM Natural Resources. However, I think 2010 will be a different kind of year with a far narrower band of equities leading the way. The successful formula for 2010 will be finding these companies; and a number of managers previously highlighted in this column will be well placed to do this.

If interest rates remain low there is every chance high yielding equities will be rerated. Against bonds and cash, companies yielding 5 per cent or more with stable balance sheets and predictable earnings look attractive. Neil Woodford, of Invesco Perpetual Income, has had a poor year by his standards, but he should bounce back in 2010 in this kind of environment. Certain growth stocks will also prosper despite the economic woes. The Old Mutual UK Dynamic Fund managed by Luke Kerr is worth following in this regard as it captures the best ideas of the Old Mutual smaller companies team, one of the finest in the City.

Finally, there are a number of managers who have historically made the big asset allocation calls successfully, and should be able to navigate the challenges of 2010 to the benefit of investors. William Littlewood, who manages the Artemis Strategic Assets Fund, Philip Gibbs at Jupiter (with his new Absolute Return Fund) and Crispin Odey (of the Insynergy Odey Fund) are all seasoned investors, who should prosper with their flexible or absolute return style strategies.

In conclusion, while I remain pessimistic about the economy and the state of government finances, I do think that global markets can make some headway so long as interest rates remain low and inflation is kept at bay. However, making tactical asset allocation decisions is more difficult than ever, and I would suggest this is something best left to the fund managers I have mentioned. With this in mind all that remains is for me is to wish all our Independent readers a prosperous and very happy 2010.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Travel
travel
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
PROMOTED VIDEO
News
Morrissey pictured in 2013
people
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Travel
travel
News
Robyn Lawley
people
News
people
News
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
News
people
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Life and Style
lifeDon't get caught up on climaxing
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Support Technician / Application Support

    £20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

    Team Secretary - (Client Development/Sales Team) - Wimbledon

    £28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

    Accountant / Assistant Management Accountant

    Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    Day In a Page

    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices
    Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

    Could smartphones soon be diagnosing diseases?

    Health Kit and Google Fit have been described as "the beginning of a health revolution"
    Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

    Can we learn to love Ryanair again?

    Four recent travellers give their verdicts on the carrier's improved customer service
    Billionaire founder of Spanx launches range of jeans that offers

    Spanx launches range of jeans

    The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
    10 best over-ear headphones

    Aural pleasure: 10 best over-ear headphones

    Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
    Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

    Commonwealth Games

    David Millar ready to serve up gold for his beloved Scotland in the end
    UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

    UCI Mountain Bike World Cup

    Downhill all the way to the top for the Atherton siblings
    Save the tiger: The animals bred for bones on China’s tiger farms

    The animals bred for bones on China’s tiger farms

    The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
    A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

    A former custard factory, a Midlands bog and a Leeds cemetery

    Introducing the top 50 hidden spots in Britain
    Ebola epidemic: Plagued by fear

    Ebola epidemic: Plagued by fear

    How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
    Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

    From 'Parks and Recreation' to 'Guardians of the Galaxy'

    He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star