10 ways to get the most out of your portfolio

You didn't need to be clever or lucky to make money out of the stockmarket over the last 18 months, you just had to be there.

With the FTSE 100 rising from a low of 3,512 points at the depths of the gloom in early 2009, to pushing the 5,500 level less than a year later, whatever you invested in had a fair chance of performing.
But the next 18 months are going to be less kind: the expert estimations range between a pretty flat overall performance to some serious drops.

So if you want your portfolio to perform you'll need to invest far more carefully. Here are 10 areas we think are worth considering:

1. Equity income

Typically, funds in this sector provide a solid equity base to portfolios, investing in blue-chip companies with consistent earnings.
One big attraction is the dividend income, which makes a startling difference. From 2000 to 2010, the FTSE 100 Index (without dividends) fell by 22%.

With dividends included, it rose by 13% over the period. Robin McDonald, co-manager of Cazenove's multi-manager funds, says: "Dividends and dividend growth are incredibly important this year."
McDonald adds that another big attraction is that these are often defensive stocks. "This year there will be a fair amount of economic disappointment, so we really like the boring areas of the equity market," he says.

Justine Fearns, investment research manager at AWD Chase de Vere, rates Invesco Perpetual High Income and Jupiter Income.

2. Emerging markets

This has been the big story of the last few years and advisers remain keen on the basis of fundamentals. Fearns says: "Growth should remain high, relative to the developed world."
Andrew Beale, manager of Henderson PR Pacific, agrees: "The area has had strong economic growth and there are good reasons why it will continue, such as the low levels of government, corporate and personal debt; the strong liquid banking sector; and tremendous structural growth."

The downside at the moment is that valuations are high, most notably in China.
Fearns believes you should opt for a broad emerging markets fund with the freedom to invest wherever is most suitable at any given time.

"Asset allocation by fund managers is important, as volatility means investing when assets are relatively cheap," she says.
She recommends Aberdeen Emerging Market Opportunities and JPM Emerging Markets, although she emphasises this is a high-risk area.

3. Strategic bond funds

These funds invest across the bond spectrum, from government bonds (gilts) to corporate bonds. They have the freedom to move into whichever part of the market is best placed to perform.

This makes them particularly attractive to investors as there are a number of variables that could have a significant impact on various parts of the bond market.
Fearns rates M&G Optimal Income and L&G Dynamic Bond, which target a total return. Paul Carne, a fund of funds manager with F&C, also rates the L&G fund, as well as the M&G Strategic Bond and the Fidelity Strategic Bond fund.
Fearns warns, however, that the asset class is not going to have as good a run as last year. "Although there's still value in corporate bonds, the large gains will not continue."

4. Large companies

There's a strong argument that larger companies will outperform their small and medium-sized counterparts this year.

The bull run has seen smaller businesses outperform dramatically, partly because their values had fallen so low in the recession that many were priced to fail.

McDonald says: "The premium for smaller and mid caps has never been so high, but the bull market won't last. This year we expect it to revert to the mean and large caps to outperform."

Most of the experts believe the way to get exposure to these funds is through an equity income fund. Darius McDermott, managing director of Chelsea Financial Services, recommends Invesco Equity Income or Artemis Equity Income.

5. High-yield bonds

The higher yielding end of the market, which pays more income in return for higher risk, suffered in the downturn. However, the danger level has subsided and the market is still paying investors well for taking the gamble.

Carne says: "It isn't risk-free but you're being paid for it. Bond funds are yielding 7%, 8% or 9%, so you have a cushion against capital loss."
Exposure, for many experts, is best found through a strategic bond fund (see point 3). However, McDermott likes the Threadneedle High Yield Bond fund and Legal & General High Income.

6. Pharmaceutical companies

This traditionally defensive sector has had a tough year. Healthcare spending is focused on the US, and the uncertain fate of the healthcare bill threw everything into question. But there's light at the end of the tunnel.

Grant Challis, partner at Frostrow Capital, which works with the Finsbury Worldwide Pharmaceutical Trust, says: "Pharmaceuticals lagged the rest of the global equity market last year, due to uncertainty over healthcare reform.

"Valuations across the sector have declined to historical lows. Now the fate of healthcare reform is more certain, stocks should rally."
He adds that the market should benefit from new breakthroughs in the biotech sector, as well as increased merger and acquisition activity.

7. Brazil 

As the fifth most populous country in the world, there's plenty of scope for growing consumer demand over the next decade. Brazil also has a strong export story.

The country will host the 20th FIFA World Cup in 2014 and the Olympic Games in 2016, which should result in another boost to the economy.

There's no doubt, however, that this is a higher-risk investment sector, suited to adventurous investors who are prepared to accept volatility.

Bamford suggests accessing the market through an exchange traded fund, such as the iShares MSCI Brazil ETF, which has a total expense ratio of 0.74%.

8. UK commercial property

Expert views on this sector are fairly mixed. However, Martin Bamford, managing director of Informed Choice, is upbeat about commerical property.

He says: "Compared with cash and equities, this sector is offering some very attractive yields."
The IMA Property sector is down by an average of around 30% over the past three years, which suggests there's some good value to be had.

With the continued weak pound, UK commercial property is looking more attractive to overseas buyers, particularly those from eurozone countries. Bamford rates L&G UK Property Trust.

However, as always, there is another side to the argument. McDonald says: "We understand why people are excited, but we still view the market as structurally challenged in terms of supply and demand and funding.

"Credit is not getting looser - and it's the lifeblood of commercial property."

9. Technology

This sector has been in the doldrums since the dotcom crash of 2000, but Carne says now could represent a great buying opportunity.

He explains: "We are now reaching the point where people have to upgrade to Windows 7. There was so much spent on IT in 2000, followed by very little for the next 10 years. It means we are now reaching the replacement point of the cycle."

McDermott likes Henderson New Star Technology and AXA Framlington Global Technology. However, he warns that pure technology funds are only for those investors with a high conviction that the technology sector will perform well.

10. United states

Magnus Spence, partner at Dalton Strategic Partnership, likes the US. He says the growth story of this year will be in developed markets rather than developing ones, and that the US is particularly well-placed to benefit.

This view is backed by the fact that the signs of recovery have been good, including the better-than-expected performance of companies, manufacturers and the jobs market.

Spence says: "Last year my fund was predominantly in emerging markets; this year it's in developed markets. There is strength in the US: the flexible workforce can be reallocated to growing areas."

McDermott particularly likes Investec American and Neptune US Opportunities, which he says has performed well over the medium to long term.

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