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 www.h-l.co.uk/independent

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

Voices
Barn owls are among species that could be affected
charity appeal
News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
PROMOTED VIDEO
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

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas