Where will you prosper in 2013?
The New Year is the perfect time to review your portfolio, so Emma Dunkley asked the experts for their tips
Sunday 30 December 2012
Although you can't predict what the future has in store, the turn of the year is as good a time as any to take a look at how your investments are set for the next 12 months.
With interest rates still at rock-bottom and returns on government bonds languishing at the very low end of the scale, getting your portfolio into shape and making your money work harder should definitely be at the top of your New Year's resolutions list.
While it's unlikely the global economy will grow substantially in 2013, there are some green shoots and a sense of cautious optimism for the next year. “We come out of the traps in 2013 feeling more confident about equities,” says Gary Potter, the fund of funds manager at Thames River. “Over the past few years people have been weaned off equities and other 'risk assets'. But you need to put to one side the biases of those years.”
Rather than look into your rear-view mirror and invest in what has done well in the past, it's important to focus on the road ahead, otherwise you could end up in a nasty crash. “To continue to base your investment strategy with reference to more recent experiences could be quite damaging – people are going to have to embrace some risk next year,” adds Mr Potter.
Government bonds, for example, have done well in the past as the eurozone crisis escalated and investors flocked to safe-havens. However, investing in Western government bonds now could actually be dangerous.
“Government and corporate bonds should be handled carefully,” says John Chatfeild-Roberts, the chief investment officer at Jupiter. “Yields on bonds issued by Western governments such as the US and UK are low but could come under pressure in an inflationary environment where interest rates start to rise.”
Ironically, government bonds are supposed to offer risk-free returns but now just offer return-free risks, says Darius McDermott, the managing director of Chelsea Financial Services. “They are giving next to nothing in terms of current yield on 10-year bonds and just a 1 per cent rise in interest rates would lead to a 9 per cent capital loss on the gilt index. And if yields return to normal levels quickly, the potential capital losses are quite frightening.”
Even though corporate bonds and lower-quality debt are looking slightly better in terms of price and the returns on offer, they're still not great. However, if you're really keen to put some of your money into bonds, then Mr McDermott recommends “strategic bond funds”, which are run by managers who have the flexibility to invest in different types of debt. In particular, Mr McDermott cites the Henderson Strategic Bond fund and the L&G Dynamic Trust.
But 2013 is being viewed as the year for equities, especially dividend-paying companies as people hunt for some form of income. “I still think in all of next year, high quality income generation will be a key feature, because interest rates are so low,” says Mr Potter. For equity income, Mr Potter tips the JO Hambro UK Equity Income Fund, run by Clive Beagles and James Lowen.
It's the UK's smaller companies that have come into their own in 2012 – up around 22 per cent – and are ripe for future gains. Mr Potter recommends the Cazenove Smaller Companies fund, managed by Paul Marriage and John Warren, which aims to grow your money over the long-term.
Don't think you should just stay rooted to home turf though, as you could end up missing out on potentially superior returns abroad. “Given the huge amount of money already in UK equities, I'd again say global dividend funds are worth a look to add an extra level of diversification,” says Mr McDermott. He recommends the M&G Global Dividend fund and the Newton Global Higher Income fund.
A more leftfield or contrarian investment – perhaps not for the fainthearted – is Japanese shares. The land of the rising sun has had many false dawns and is arguably the least loved developed market among UK investors. But the recent election of Prime Minister Shinzo Abe has been warmly welcomed, and bodes well for boosting the country's ailing economy. With this in mind, now could be the time to snap up shares while they're on the cheap.
“Japan is an area we like for next year,” says Gavin Haynes, the managing director at Whitechurch Securities. “Many have thrown the towel in, because it's been a perennial underperformer. But valuations are looking attractive. We've seen change in the political backdrop, combined with a weakening yen – it will be significant this year.”
Mr Haynes recommends the Jupiter Japan Income fund, managed by Simon Somerville, which aims to grow your money and income.
Europe is also still looking cheap and attractive, says Mr Haynes, who recommends the Henderson European Special Situations fund managed by Richard Pease.
Meanwhile, Trevor Greetham, the asset allocation director at Fidelity, is upbeat on the world economy and expects the trend to favour US and emerging market stocks. “US stocks have outperformed Euro Area stocks by around 50 per cent since the middle of 2007 and policy differences still lead us to favour the US,” says Mr Greetham. “US property prices are rising, banks are willing to lend and unemployment is falling.”
But, as the experts concede, despite these pockets of opportunity, 2013 won't be plain sailing. Although equities in certain regions are tipped to do well, there are definitely headwinds on the horizon that could make it a rocky ride, including any relapse in Europe's debt crisis, as well as tax and spending changes in the US.
What to avoid
Aside from Western government bonds, the experts warn of other areas you should be wary of next year. “Opportunities remain in carefully selected corporate bonds but again, rising interest rates would create a headwind for them,” says John Chatfeild-Roberts at Jupiter.
Property as an investment is also an area in which to tread carefully. “We think commercial property is going to struggle,” says Gavin Haynes, the managing director of Whitechurch Securities. “We are not completely negative but we still think it'll continue to be an area where returns are fairly staid next year.”
Gary Potter at Thames River says: “My worries are that those funds that have taken lots of money could be disappointing … it's about the price you pay.”
Emma Dunkley is a reporter for citywire.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
How couples can protect their financial interests when cohabiting
Money alert: Overdrafts at HSBC and First Direct
'Dismal' eurozone data sparks concerns
How to protect your assets if the stock markets begin to head south again
Child Maintenance Service to replace Child Support Agency - but is it better?
- 1 Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
- 2 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 3 A third of employers never check job applicants' qualifications, survey finds
- 4 James Foley beheading: Fox news presenter Megyn Kelly annoyed by Ferguson update during broadcast about murdered journalist
- 5 Paul Scholes: Manchester United need five experienced players who can turn round a desperate situation
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Scottish Independence Referendum: Salmond described as 'arrogant, ambitious and dishonest' by Scottish women
iJobs Money & Business
£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...
£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...
£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...
£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony