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Adviser Fund Index

There is a bracing feeling that comes from more than just the bitter cold snap Britain has endured. Concerns over sovereign debt crises in the eurozone and a new round of quantitative easing in the US helped to undermine some of the early enthusiasm following the 2009 rebound.

Adviser Fund Index panellists are under no illusions that volatility and market risk are things of the past. Chelsea Financial Services managing director Darius McDermott says: “We are getting nervous about gilts and hence corporate bonds, so we prefer strategic bond funds. We like equities but we are aware there is a cloud of sovereign debt risk hanging over the market.”

His sentiments are shared by other panellists and there is a growing consensus that fixed-income markets are failing to present opportunities. Chartwell Investment Management head of fund research James Davies says: “We doubt you will get any real return from fixed interest this year. It looks less good value than equities.”

Both Davies and McDermott agree that equities with good dividend yields are likely to do well in current market conditions. The combination of low bond yields and market volatility make larger stocks with proven earnings and a solid track record of dividend payments all the more attractive.

Despite this, there is some division on which equity markets offer the best value. McDermott says emerging markets are likely to continue to outperform developed markets in terms of equity returns. That said, investing in emerging market growth does not necessarily mean directly putting money into overseas markets.

He says: “There are lots of good ways to play these markets through domestically listed companies. There are funds such as M&G global basics that look to benefit from emerging market growth through investing in global brands.”

McDermott is positive on the prospects for Asian currencies and has a particular slant towards overseas equities. Davies, however, fears the recovery in some emerging equity markets is already overdone.

Where there is little call for extra exposure in the AFI portfolios is in eurozone equities. With the bailout of Ireland still not fully resolved and uncertainty as to how the Irish debt crisis will impact other members of the single currency with large fiscal deficits, many investors have been scared away from the region.

In contrast, there seems to be growing conviction in the prospects for the gold price in 2011. Positive sentiment towards gold has traditionally suggested an underlying concern over the forecast for other markets. It seems that the appeal of a safe haven is beginning to outweigh earlier concerns that with gold around $1,400 an ounce, the majority of the gains to be made in the asset class have already been had.

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