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

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; 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
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
News
Robert De Niro has walked off the set of Edge of Darkness
news The Godfather Part II actor has an estimated wealth of over $200m
Arts and Entertainment
Fearne Cotton is leaving Radio 1 after a decade
radio The popular DJ is leaving for 'family and new adventures'
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

    SThree: HR Benefits Manager

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

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower