Where to find a financial winner in uncertain times
Experts give their predictions for the best returns in the coming year.
Saturday 17 December 2011
Deciding where to invest your money is never an easy task. Making calls on which asset classes are likely to perform well and what factors should be kept in mind is a challenge even in rising markets, but when the economic backdrop is so uncertain it can seem like mission impossible.
With interest rates at rock bottom levels and UK inflation running around 5 per cent, anyone who keeps substantial amounts in high street bank accounts will see the value of their holdings eroded, forcing them to consider other solutions – but everywhere they look there are potential problems.
Europe is still in crisis with the region's politicians at loggerhead over the best ways to solve the ongoing debt issues, while the ramifications of this year's other problems, such as the Middle East uprisings and concerns over global growth, are still making their presence present.
Unsurprisingly, stock markets have been all over the place. The FTSE 100 index was at 5,899.9 points as Big Ben chimed at the start of 2011. By the middle of December it was down to 5,529.2 – a fall of 6.3 per cent – although it had climbed as high as 6,105.8 at one stage.
So where does that leave us? To help us reach conclusions we have combined the thoughts of leading financial advisers, fund managers and economists that have given their predictions for the coming year and identified which asset classes they expect to generate the best returns.
What's in store for 2012?
It has certainly been a tough time with a "crippling inability" to create a constructive political backdrop to shore up economic growth having led to a crisis of confidence and intense volatility, according to Thomas Becket, chief investment officer of PSigma Investment Management.
"Both financial markets and our nerves have been battered over the last six months by a constant barrage of political uncertainty stirred up furiously on both sides of the Atlantic," he says. "Political ignorance, ineptitude and immaturity have been the only certainties of a truly unpredictable year."
It is not something he expects to change any time soon.
"With the Europeans unable to reach a conclusive agreement to their woes and a presidential election in the US on the agenda for next year, we sadly expect more of the same in the year ahead," Mr Becket said.
Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, agrees that investment conditions will remain difficult with short, violent economic cycles, driven by fiscal and monetary stimulus. Diversification, he believes, will make sense.
"We continue to favour bonds over equities," he says. "We also remain underweight in commodities, albeit overweight in gold. Within equity markets we favour the US as it has relatively defensive attributes and is the most likely to stimulate its economy."
According to Mark Burgess, chief investment officer at Threadneedle Investments, the uncertain outlook means it's not an environment in which to take significant risks, although he suggests that clever stock-picking will be enough to find attractive opportunities in fixed income and equities.
"Whatever happens to the eurozone, the prospects for growth in the developed West are bleak, with the invisible hand of deleveraging set to constrain activity for several years," he says. "We have now pencilled in zero growth in the eurozone and the UK for 2012, and 1.5 per cent for the US."
However, robust emerging market growth should help to balance the developed world. "Our core view is that equity markets are inexpensive even in a low-growth environment," he adds. "Company balance sheets are strong, many businesses are returning cash to shareholders and valuations are very attractive on a range of measures."
For fixed-income investors, the current environment makes it more important than ever to invest flexibly and strategically across global bond markets, argues Nick Gartside, JP Morgan Asset Management's international chief investment officer for fixed income.
"Strategic bond funds can take a global view in search of the most attractive markets and securities, irrespective of any benchmark, adapting their fixed-income allocations and duration exposures for the prevailing economic and market environment," he says.
"Investors need to be able to change their allocations and portfolio positioning in order to try and limit losses and seek out the most attractive valuations.
"With global bond market returns likely to continue to surprise in 2012, such a flexible approach could help investors to navigate these complex markets," Mr Gartside adds.
Which investment funds look attractive?
Darius McDermott, managing director of Chelsea Financial Services, believes equities could do extremely well if there's even relatively modest good news over the coming year.
Funds which buy companies that offer decent dividends, he suggests, could prove particularly attractive.
"If you're buying dividends then at least you're getting some money in and it gives you some downside protection," he says. "Funds such as Invesco Perpetual High Income buy those sorts of companies. We also like M&G Global Dividend and continue to like Newton Asian Income. All have had a really good year and we expect that trend to continue."
Patrick Connolly, head of communications at AWD Chase de Vere, believes equities – and, in particular, emerging market equities – are attractively valued and will rise in value at some point.
The big question, however, is whether they will do so in 2012.
There are two funds which he believes are worthy of investors' consideration: M&G Global Basics and JPM Emerging Markets. "The M&G fund has an excellent track record and invests largely in western companies that will benefit from the economic growth in emerging markets," he says. "JPM Emerging Markets is a diversified, emerging markets fund which utilises the huge investment resources of JP Morgan and will be able to buy cheaper shares following the market falls in 2011."
Stocks and sectors
Graham Spooner, investment research analyst at The Share Centre, expects the current market volatility to continue for as long as the eurozone problems exist, but is optimistic about the outlook for UK corporations with healthy balance sheets that generate significant earnings from overseas.
"The sectors we feel are worth recommending for investors are health care, pharmaceuticals and personal goods," he says. "Our stock picks for 2012, meanwhile, are GlaxoSmithKline, Kenmare Resources and Royal Dutch Shell."
Mr Spooner says the health care sector is heavily dependent on spending and consumer wealth which makes it potentially volatile as consumer sentiment can change quickly, and if money needs to be saved this is one of the areas that may fall victim.
"Demographics should also play an important part in any decision when buying within this sector," he says. "Emerging market consumers are becoming more affluent and healthcare more affordable and this is an area where big in-roads can be made."
Turning to the pharmaceuticals sector, he said: "By investing in some of the giants you can get attractive yields, along with stability created by share buybacks and large levels of cash generation. "Emerging market expansion will be key, especially in China and India which previously may not have been able to afford expensive – or even some basic – medicinal treatment."
On personal goods, Mr Spooner pointing out that the region currently accounts for 26 per cent of all spending on luxury items – a figure that's expected to grow significantly over the coming years.
"This sector is cyclical and likely to outperform in a bull market and underperform in a bear market," he explains. "It is suitable for those wishing to have a medium level of risk and looking for growth, as yields are lower than the FTSE 100 average."
As far as the stock picks are concerned, Mr Spooner says GlaxoSmithKline offers a good yield and he likes its expansion plans into the emerging markets and its diversified portfolio of products.
"It has suffered from a prolonged period of under-performance, but this changed in 2011 and we hope this trend will continue into 2012," he adds.
"Kenmare Resources is a titanium and minerals miner in Mozambique that may not be on many investors' radar, but has proven assets and is on the cusp of making a profit. There is also an underlying demand of its products."
Finally, there Royal Dutch Shell. "It currently has an attractive yield and dividend growth that is expected to remain high," says Mr Spooner. "The company's restructuring has gone well and lots of cash is expected to be generated from the investment phase in the next decade. It is also worth noting that its debt to equity ratio is low."
You need to consider an investment time horizon of at least five years, argues Geoff Penrice, an independent financial adviser with Honister Partners. Trying to time the market is very difficult, he argues, with people tending to get it wrong more times than they get it right.
"The world economy is still growing and there will be investment returns to be had, but there are still many uncertainties and risks which could derail things," he says. "When you invest for the longer term, short-term volatility is not very important."
Under new state pension rules we will all be much worse off
Budget 2015: George Osborne is set to get tough with further cuts in public spending
Simon Read: 'Savers, take action - only £75,000 of your nest-egg will be protected'
Simon Read: 'Taylor Swift tickets purchased on Viagogo were cancelled hours before the concert'
Bank-beating exchange rates on your international payments
- 1 Michelle Watt's father says TV presenter killed herself because she was in constant pain
- 2 Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
- 3 San Francisco TV news crew attacked by armed robbers during live broadcast
- 4 Greek debt crisis: The photograph that conveys the despair of Greece's elderly
- 5 Miami defendant sobs in court as he realises he and the judge attended the same school
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
Day In a Page
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.