These are challenging times for investors. With rock-bottom interest rates, financial problems blighting countries around the world, and widespread economic uncertainty, it's certainly not an easy task to decide where best to put your money.
Is now the time to channel your cash into equities? Are bonds likely to offer much in the way of value over the next 12 months? Can you believe claims that property will provide decent returns? Should you be putting your faith in active managers, or opting for trackers?
We have quizzed a wide variety of independent financial advisers, economists, global strategists, stock-market analysts and fund managers to predict which will be the most successful asset classes, regions and companies in 2013 – and which are best avoided.
Geoff Penrice, a chartered financial planner with Astute Financial Management, believes the next 12 months could be good for equities, for two main reasons: the likelihood of improved economic conditions in China and the US, and the relative value of shares compared to government bonds.
"The FTSE is giving an income of around 3.7 per cent compared to five-year gilts yields of 0.8 per cent and 10-year gilt yields of 1.8 per cent," he explains. "There is also the prospect of capital growth from equities, but even if share values go sideways for a while they are still giving a better return than gilts. Companies are sitting on large cash reserves, which give them greater potential for growth in the future."
David Coombs, head of multi-asset investments at Rathbone Unit Trust Management, also likes the look of equities – particularly the US, Germany and Asian markets – but has serious reservations about fixed interest, which he believes offers little value.
"We don't like investment grade corporate bonds because they look expensive, as do most sovereign bonds," he says. "There are pockets of value in certain high-yield bond markets, but I will certainly be taking more risk by using equities next year at the expensive of most bond markets."
However, Ian Spreadbury, manager of the Fidelity MoneyBuilder Income Fund, insists that a conservatively run corporate bond portfolio with prudent liquidity management and access to good credit research offers the best risk-return mix for investors.
"It is too early to write-off investment-grade corporate bonds because there is still scope for decent single-digit returns in 2013," he says. "I expect the positive flows into the market to continue, although these will be met by falling levels of bond issuance."
Jason Hollands, a managing director at Bestinvest, favours both core Europe and global emerging markets – excluding China, which he believes is facing imbalances in its economy, inflationary pressures and rising social unrest.
"Global emerging market equities are now as cheap as they have been in 12 years, while persistent negative newsflow from the eurozone has resulted in prolonged outflows from European equities, which has led to an almost indiscriminate discount placed on European-domiciled stocks," he says. "As a result, the valuation gap between European global businesses and their US peers is at its widest level in a decade."
However, there may still be issues, warns Carl Melvin, managing director at Affluent Financial Planning.
"Emerging markets have greater growth potential than developed economies but will be volatile, and growth may decline from what we have seen," he says. "Europe will also continue to struggle until clear direction on government debt provides a resolution."
Darius McDermott, managing director of Chelsea Financial Services, believes 2013 will be similar to the past 12 months, with the developed world struggling to grow, interest rates staying low, and the eurozone issues unresolved.
"My contrarian bet for 2013 is Japan, which, after all its false dawns, is the least-loved developed market by UK investors," he says. "The yen has weakened recently, and if this remains the case, foreign investors should start to address their underweight positions in the asset class."
Stocks and sectors
David Kuo, director at the financial website Motley Fool, believes the coming year will be characterised by low interest rates, stubborn inflation and slow economic growth in the UK, with Asia expected to continue growing and the rebalancing of China's economy providing opportunities for investors.
"Given this backdrop I like consumer goods stocks with strong brands and an established presence in Asia, such as Unilever, Reckitt Benckiser, Burberry and Mulberry," he says. "Companies that can raise prices in the face of inflation, such as utilities, are worth looking at."
He also suggests that stocks with good cashflows and a record of raising dividends could lessen the pain of poor interest paid on savings accounts.
"The supermarkets and telecoms are still paying attractive dividends," he adds.
Helal Miah, investment research analyst at The Share Centre, believes there could be some interesting opportunities across the retail, technology, and mining sectors.
"Despite fear from businesses and investors of a repeat of the burst of the dot.com bubble in 2000, the technology sector is currently thriving," he says. "This growth has been attributed to the companies' global reach, consumer demand and increased sales. Investors will find some UK-based tech firms among the solid performers offering decent prospects."
Although the share prices of many commodity producers were disappointing in 2012 due to a combination of the eurozone crisis and a general slowdown in the global economy, Mr Miah expects mining and commodities to perform well next year.
"China is key to the outlook for commodities due to increased demand from its rapid industrialisation and status as the 'world's factory'," he explains. We believe China will pleasantly surprise as the effect of the new President comes to bear on the nation."
However, he is less enthusiastic about financial names.
"The banking sector is still one we would suggest investors avoid; despite the outlook looking a little rosier the problems remain," he says. "In the short term, politicians are pulling the strings, and with that in mind confidence in the sector is likely to remain low."
Andy Gadd, head of research at Lighthouse Group, suggests that merger and acquisition activity, which has been relatively muted since the 2008 financial crisis, may also pick up.
"The benefits of industry consolidation and cheap funding (for good risks) mean that many deals done now may have lasting benefits for shareholders in terms of operating efficiency, pricing power and sales and profits growth," he says. "With various equity markets currently trading on relatively low valuations, the benefits of buying rather than building capacity are potentially significant."
Jason Witcombe at Evolve Financial Planning advises people to put together a portfolio of UK and overseas assets with which they are comfortable and then rebalance it every year back to their pre-agreed target.
"I would encourage investors not to try to time their entry in and out of different markets or regions," he says. "If anyone could do this accurately, with any consistency, they would be sipping pina coladas in the Caribbean, not sharing their predictions with you or I."
Stock picks for 2013
Helal Miah, investment research analyst at The Share Centre, highlights four companies which have the potential to deliver over the coming year.
Despite the recent downward revision for its 2012 and 2013 production estimates, we continue to rate the company as a "buy". Investors can consider the current lower share price a good buying opportunity for a long-term investment, but we do now consider the risk on the shares to be at the upper end of medium.
We recommend Mulberry as a "buy" for investors who are willing to accept higher risk and believe the recent pull-back in the share price represents an entry point for a long-term investment into a stock. Mulberry has great potential from its international expansion plans and the increasing numbers of affluent consumers in the emerging markets.
Inmarsat published a good set of interim results in early August on strong subscriber uptake, and the traction gained from its pricing initiatives, which was again reflected in its third-quarter results. Despite earnings falling short of analysts' expectations, Inmarsat believes it is well positioned to meet revenue targets for this year and next year.
Compass reported a strong set of final results, showing good levels of revenue and profit growth. Restructuring costs are likely to have an impact on capital returns in the short term, but any weakness in the share price could be an opportunity for investors.
Fund picks for 2013
Vanguard UK Equity Index
Geoff Penrice, Astute Financial Management: "For general equity exposure I am using tracker funds to provide a well-diversified investment in specific asset classes at a low cost."
Thames River Distribution
Andy Gadd, Lighthouse Group: "Thames River's flexible approach to asset allocation allows the fund to tap into specialist income opportunities which are overlooked by many of their competitors."
M&G Global Dividend
Darius McDermott, Chelsea Financial Services: "Global dividend funds are worth a look to add an extra level of diversification."