What will be the best fund for you in 2012?

Asia, Europe...even gold equities, next year presents a conundrum of where to put your money. Emma Dunkley provides some possible solutions

At first and even second glance the investment prospects for 2012 look pretty dire.

Just coming off the back of a year when the FTSE has fallen 6 per cent, worse could be in store with the eurozone crisis continuing and developed nations sitting on a mountain of debt, it is tough to see through the storm and forecast where best to invest your money next year.

But – much like trying to predict the weather here – no outcome is certain so it is wise to prepare for different scenarios and spread your cash.

Until there are some concrete solutions to the eurozone crisis and the US comes up with a credible plan to reduce its debt, defensive equity funds could well be one of the best ways to put your money to work. Meera Patel, a senior investment analyst at Hargreaves Lansdown, says the Invesco Perpetual Income funds run by star manager Neil Woodford can provide decent returns while protecting against swings in equity markets. She says: "On the one hand, investors may wish to gain shelter against further volatility by investing in defensive areas such as absolute funds or in funds that use different assets such as the Trojan fund and CF Miton Strategic Portfolio."

But on the other hand, Ms Patel says taking some risk in the event of a market recovery could prove beneficial, especially if a solution to the eurozone crisis is found. She says: "Companies in general are in very good shape, but countries – mostly Western – are not. With this in mind, it could be worth looking for where the best value is, which currently points towards Europe and Japan."

Although investing in Europe and Japan in the present climate might be brave and bold decisions, Ms Patel says there are some exceptional companies in these regions with superb growth prospects. "Funds such as the Henderson European Special Situations and the GLG Japan CoreAlpha stand to do well from a sustained recovery in markets," she says.

It might be worth dipping a toe in choppy European waters, so long as it is only one toe as the outlook for the region is still murky. Adrian Lowcock, a senior investment adviser at Bestinvest, says: "So much depends on the eurozone result – if it's positive, then European stocks could do very well as they performed badly in 2011. However, there is a reason they are undervalued – there is the risk Europe will not find a solution."

Bearing this in mind, Mr Lowcock says the Ignis Argonaut European Income fund is attractive as it provides an income of 5.4 per cent although investors could be in for a bumpy ride as the eurozone recovers.

As well as Europe's woes, the UK is on course to see years of low growth, and with interest rates at 0.5 per cent, investors are scrambling to find an income that beats inflation. Darius McDermott, the managing director of Chelsea Financial Services, says equity income can help you to stay ahead of inflation which is hovering around 5 per cent. The compounding of dividends, where they are reinvested, also provides around two-thirds of long-term equity returns.

"With equities, my preference is for income funds again this year," says Mr McDermott. "I favour Neil Woodford and Invesco Perpetual High Income, Stuart Rose's M&G Global Dividend fund and Jason Pidcock's Newton Asian Income." He adds that although the Asian fund is riskier than the other two, he expects Asian currencies to appreciate against the pound in the long term, making it less risky than in the past.

Indeed Newton Asian Income is a favourite among advisers. Ben Willis, the head of research at Whitechurch Securities says the fund, which pays a dividend of more than 5 per cent, has achieved a stellar performance over the past few years, growing more than 120 per cent compared with the market's 90 per cent. But the fund is also run defensively, to protect your money when markets fall. "Pidcock will only invest in yielding stocks," says Mr Willis. The fund taps into the established dividend culture within corporate Asia and will have a bias to larger companies. "This approach has meant that Pidcock has proved adept at protecting capital when Asian markets are being sold-off," Mr Willis adds.

Although the region looks attractive over the long term, Mr Willis warns that 2012 could see investors become risk-averse and markets volatile, meaning a defensively run fund would be a prudent option.

But aside from seeking defensively managed funds, investors looking for "safe havens" next year will have to reconsider their options. Money flooded into UK bonds in 2011 in the view they offer protection but this has pushed prices up and driven yields down to around 2 per cent. Yvonne Goodwin, of Yvonne Goodwin Wealth Management, says: "I am wary of the gilt market – we are invested in this, but the rapid growth over the past few months since the flight to safety show numbers that seem unsustainable."

Instead, Ms Goodwin says she will be looking at investment-grade corporate bonds, both in the UK and internationally, to help diversify clients' money. "Investors need to get used to the idea that there is no longer a 'risk-free' asset," she adds.

Fund managers are also having to adapt to the changing landscape, especially those in new roles or who have underperformed. Philippa Gee of Philippa Gee Wealth Management says one of the fund managers who has to pull out all the stops is Jeremy Podger, who will be taking over the Fidelity Global Special Situations fund in March. "Jeremy has a strong history and is certainly capable, but his fund has suffered in recent years, since it was handed on from Anthony Bolton," she says.

If markets do get the stimulation they need there are funds poised to benefit. Mr McDermott says: "Sanjeev Shah, who runs Fidelity Special Situations, has had a poor 18 months but his fund is positioned to do well if markets are strong."

For those who fancy a left-field investment, rather than the more mainstream defensive equities, then buying into equities of gold-mining companies offers a significant growth opportunity. Mr McDermott says: "Investec Global Gold is one fund I tipped last year but has underperformed, with gold equities down approximately 12 per cent. We correctly predicted the continued rise of gold – which is up around 20 per cent this year – but gold equities underperformed."

He adds: "They are now at record discount to the gold price and I think will perform strongly over the next few years, even if gold stays at present levels. But if gold continues to rise, they are even more attractive."

Emma Dunkley is a reporter at citywire.co.uk

Expert View

Darius McDermott, Chelsea Financial Services

I would expect continued market volatility and with the lack of certainty, the best way of investing is via a monthly savings plan. If the European politicians sort out their issues then stock markets could have a good year. If not it will be another difficult year for markets. We favour income funds – particularly Invesco High Income and M&G Global Dividend.

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

News
Bill Gates, founder of Microsoft and co-chair of the Bill and Melinda Gates Foundation
businessUber, Snapchat and Facebook founders among those on the 2015 Forbes Billionaire List
News
news... and what your reaction to the creatures above says about you
News
Homer’s equation, in an episode in 1998, comes close to the truth, as revealed 14 years later
science
News
news
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

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003