Promising places to put your pounds this year

What are the new year's top investment tips? Helen Monks asks the experts

What will be the big themes uniting the portfolios of successful investors in the coming year? We asked the experts to give their predictions on the top shares and funds from the favoured countries and sectors for 2005, plus the inside track on the best ways for investors to protect their wealth from the potential ravages of inflation or deflation. And, although the UK housing-market boom is over, property experts are able to point would-be buyers to regions where strong investment potential can still be found.

What will be the big themes uniting the portfolios of successful investors in the coming year? We asked the experts to give their predictions on the top shares and funds from the favoured countries and sectors for 2005, plus the inside track on the best ways for investors to protect their wealth from the potential ravages of inflation or deflation. And, although the UK housing-market boom is over, property experts are able to point would-be buyers to regions where strong investment potential can still be found.

Barclays Stockbrokers says that, following the stock markets' robust performance in the second half of 2004, there is an expectation of restrained growth in the coming year, and it expects the FTSE 100 to finish 2005 at around the 5,000 level. Among UK companies, Barclays' recommended buys include telecoms Vodafone and mmO2. Hilary Cook, director of investment strategy at Barclays Stockbrokers, says, "Vodafone has a huge ability to generate cash and is the No 1 operator in a growth market. mmO2 is not quite as strong, but there could be potential takeover activity this year, which would provide an extra boost."

The execution-only stockbroker TD Waterhouse says its customers are currently indicating confidence in mmO2 as well as in BT. The banks HSBC and Royal Bank of Scotland also get the nod from Ms Cook: the former because of its global presence, meaning that it is well-placed to benefit from expected growth in the Far East; the latter because it, too, is well-placed to benefit from the global recovery that many pundits believe is taking root.

Evidence from TD Waterhouse supports this position. Angus Rigby, senior vice president, says, "Confidence in equities seems to be up among our customers, and it's looking particularly good for banking and telecoms."

Looking further afield, Ms Cook reckons China should be able to keep growing at a rapid pace through 2005, and while in the short term the risk of a hard landing is increasing, the potential for rapid growth over the medium term outweighs the near-term risks for investing.

"One of the best ways of tapping into Chinese economic growth is through the mining sector; China is one of the world's largest consumers of copper and other commodity metals. Rio Tinto, quoted in the UK, is our preferred diversified mining stock. Telecom equipment is another key beneficiary of growth, and our preferred stock is Swedish-quoted Ericsson, while Germany's Siemens could also be a key beneficiary."

Favoured routes for accessing this growth via investment funds include Aberdeen Asset Management's China Opportunities and Fidelity's Greater China Fund.

Mark Dampier, research director at independent financial adviser Hargreaves Lansdown, is more circumspect about following popular themes and funds, and suggests that investors should make it their new year's resolution to spend more time searching for good fund managers.

"It doesn't matter if you guess the larger macro-economic patterns correctly and invest in an area where there is good performance, unless the manager of your chosen fund is doing their job properly."

He favours fund-management companies such as Artemis, and reckons that most investors would do well to have a core holding of UK equity-income funds managed by well-respected fund managers with a strong track record.

Not everyone is as upbeat on the prospects of global stock markets in 2005.

David Kauders, a partner at Kauders Portfolio Management, which specialises in UK and US government securities representing an ultra-cautious approach to investment management, believes the end of the housing boom and the reliance of UK consumers on borrowing in order to spend will undermine recovery.

For Mr Kauders, investors who come through 2005 on the winning side will be those looking to protect their wealth from deflationary pressure by investing in gilts and steering away from equities - "Now is not the time to gamble, and investors need to be much more prudent and cautious."

If you take a cautious view this year, gold can provide another route to preserving value in uncertain times. Barclays Stockbrokers says gold has a good upside should inflation head higher, but that it has also held up well amid concerns about deflation.

Investors can buy the stuff itself in the form of bars, coins and jewellery, buy bullion securities, opt for shares in gold mining companies, or buy through commodity funds, which are likely to prove a less rocky ride than buying direct, as a 1 per cent shift in the price of gold typically equals a 3 per cent shift in the share prices of gold companies.

Evy Hambro, director at Merrill Lynch Investment Managers, says, "Gold had a good year in 2004, and 2005 looks set to be as good. The key sentiment drivers, such as the weakness of the dollar, are set to continue, as are supportive fundamentals such as decreasing supply and increased demand from China." Investing through commodity funds, such as Merrill Lynch's Gold and General, can offer access to this upside, but the risks of the downside are reduced, as the fund has holdings of a variety of different companies accessing gold in different regions using different methods.

That gold is tangible may offer pessimists peace of mind this year, but the touchable quality of bricks and mortar is likely to bring little comfort to buy-to-let landlords in 2005. With Bank of England figures showing mortgage approvals at 10-year lows and even the most optimistic economists predicting rises no higher than 2 per cent in values, the signs are not good for a buoyant housing market. But investors taking a sensible long-term view could still enjoy capital appreciation in addition to rental income from new purchases this year. Miles Shipside, commercial director of the online estate agency Rightmove, advises looking for special-demand situations, such as regions supporting growing universities, or places where outside money, for example from regeneration funding, is beginning to take hold. He cites Middlesbrough and Hull as areas where this pattern is emerging, and says estate agents around Liverpool are expecting house prices to out-perform those in the rest of the country.

Now might also be a good time to snap up bargains across the UK for those looking only to invest in properties near their home. Mr Shipside says, "In most markets where sales have been down for five months they'd have a sale, but so far that hasn't happened. Now vendors who were unable to sell in the autumn may return to the market in the new year, resolving to cut their asking price."

For the City of Culture, the only way is up

"All the indicators point to Liverpool bucking the national downturn this year and beyond," says Philip Lawton, partner at an independent Liverpool estate agent, Sutton Kersh.

The area's universities are continuing to expand, increasing numbers of businesses are relocating their staff to the region, and the naming of Liverpool as the European City of Culture has brought the city into sharper national focus, says Mr Lawton.

He adds that most of the buyers of investment properties over 2004 were from Ireland and the South of England. It is still possible to pick up modernised terraces in areas such as Anfield at around £60,000, with a rental value of around £375 per month, and this trend is expected to continue into 2005.

Local experts also recommend that investors take a look at emerging areas, including large chunks of south Liverpool. In Allerton, for example, you can still expect to buy now and enjoy decent capital appreciation, in addition to rental income.

For the more speculative buyer, Mr Lawton says the only way is up for Bootle; and planned new transport links could help turn around the fortunes of the housing stock there.

Two Markets To Watch

Japan: According to Barclays Stockbrokers, Japanese structural reforms have been slow to arrive over the past decade, but they have been substantial and their effects far-reaching. It believes these changes will make Japan a rewarding place to invest over the next 10 years.

Barclays says that Japanese companies are in robust health compared with both their overseas competitors and their own recent history, and that they are also cash-rich and they are increasingly seeing new growth opportunities. Favoured Japanese funds for current investment are Martin Currie IF Japan; Schroder Tokyo; and Baillie Gifford Japan.

Platinum: The fundamentals look extremely strong for the jewellers' favourite precious metal, experts say, but most opt for funds that invest in a number of companies involved in platinum mining, as opposed to buying shares directly, in an attempt to even out the potential volatility.

Evy Hambro of Merrill Lynch Investment Managers says, "With the dollar's weakness, the currencies of countries where platinum is produced, most notably South Africa, has grown stronger. The result is that planned expansion projects, which would have increased supply, have not been completed. This is limiting supply at a time when demand remains very high."

All of MLIM's commodity funds hold shares in a number of companies that mine platinum.