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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
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

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Claims Administrator

    £16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

    Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

    £50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss