Mark Dampier: Spread out to cushion another bumpy ride

The Analyst

As with 2011, the investment tug-of-war next year is likely to be fought between the bleak macro-economic environment and the rather better-looking corporate environment. In 2011 the macro-economic environment won, and the best-performing areas were safe havens such as gold and gilts. Yet company profits have so far held up admirably, so will 2012 be different?

It is important to recognise that GDP growth (or contraction) does not directly translate to stock market performance.

We only have to look at China for that. Although growth has continued apace, the stock market has been dire.

The reverse can also be true. Some companies can thrive despite wider economic difficulties. Fund managers who focus on the prospects for individual firms can therefore outperform when forecasting economic events becomes impossible. A prime example is Anthony Cross of Liontrust Special Situations, who has continued to show what a good stock picker he is throughout 2011.

Another manager who dislikes spending too much time on the macro picture is Nick Train. He launched the Lindsell Train Global Equity fund with Michael Lindsell in March, and his portfolio has coped exceptionally well in the subsequent volatility. Their focus is on large, international companies with strong brands and a high level of cash generation. It has been precisely the right place to be in recent months and I believe it should continue to thrive in the coming year.

For most investors, however, the eurozone crisis is too big to ignore. I believe it will rumble on until politicians are forced to act – probably under the strain of market pressure. Eventually the Germans will have to cave in and begin the process of quantitative easing unless they want to trigger a depression. It is just a question of how severe things get before they do.

Although this would in time be good news for risk assets I can see it simply moving the focus elsewhere. The inability of US politicians to make decisions is worrying, as is the possibility that China will find it difficult to engineer a soft landing in an environment of slowing global demand. A substantial slowdown in China would have grave consequences for the world economy.

Finally, there is political risk. As Niall Ferguson pointed out in a recent seminar I attended, Iran is on the verge of enriching uranium, and any nuclear weapons programme is likely to be met with a strong response from Israel. How will Obama act when woken at 3am to be told that Israeli fighter jets are in the air?

For all these reasons I will be keeping some money with fund managers of a bearish or cautious disposition. These include Philip Gibbs of Jupiter Absolute Return and Martin Gray of Miton Strategic Portfolio. Leonard Charlton of Melchior European Absolute Return is also a manager worth considering. Although many absolute funds have failed to deliver, he has continued to thrive.

With interest rates set to remain low throughout 2012, income is likely to represent a particularly important component of investor returns, and I expect high-yielding equity funds to remain popular.

Two of my favourites are Bill Mott's PSigma Income, which has shown a real improvement this year, and Neil Woodford, the stalwart of Invesco Perpetual High Income. Bond funds, too, look good value. They will have the potential fallout from the eurozone to deal with, but much of this could already be factored into prices. M&G Optimal Income and Jupiter Strategic Bond are my slightly more cautious picks here, but should we see a solution to the eurozone crisis, financial bonds could rally fast and Paul Read and Paul Causer's Invesco Perpetual Tactical Bond Fund is likely to make a comeback.

Finally, for the brave and contrarians among you, two of the cheapest markets according to our own research are Europe and Japan. Richard Pease of Henderson European Special Situations and Stephen Harker of GLG Japan are my favoured managers here.

Incredibly, the Japanese market is at a similar level to 1983, and both areas are unwanted, unloved and deeply unfashionable. They may be the surprise package of 2012.

My general feeling is that 2012 is going to be another volatile year. The best course of action is to ensure you have a thoroughly diversified portfolio of different asset types and strategies, and not simply to rely on geographic diversity.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit

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

Arts and Entertainment
musicBand's first new record for 20 years has some tough acts to follow
peopleAt least it's for a worthwhile cause
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Life and Style
Sexual health charities have campaigned for the kits to be regulated
healthAmerican woman who did tells parents there is 'nothing to be afraid of'
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Quantitative Risk Manager

    Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

    Day In a Page

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments