Where should you invest in 2011?

If there's a theme to 2011, it's uncertainty. Experts are widely divided on the outlook for the global economy, and the regions, sectors and types of companies that will produce strong returns for investors next year.

As we'll see, they favour everything from higher-risk areas, such as private equity and technology, to more solid sectors like equity income.

But take a look at the areas that don't appear on the list of favourites. China is generally considered to be overvalued in the short term and is not a focus; nor is the US a popular choice. And government bonds, despite ongoing worries about the economic recovery, are not on anyone's wish list for next year.

So where do the experts think we should be putting our money in 2011?

Tim Cockerill, head of research at Rowan & Co. Capital Management


"This year could prove to be quite tough. The Federal Reserve is doing more quantitative easing, which is a strong signal that the economic recovery is not working out as it had hoped.

"Even in the UK, where the economic data has been better than expected, there are the headwinds of VAT increases and spending cuts to battle against.

"That said, there are areas where investors will do better this year. Equity income is likely to be one of those areas - both in the UK and globally. Interest rates are likely to stay very low; you can get much higher income from shares, and have a far better chance of beating inflation. There's also the chance of capital appreciation.

"I would look at the Artemis Income fund. The top holdings are companies such as Vodafone, Glaxo and HSBC, which are going to be solid whatever the economic environment. Even if the capital value moves about, this fund is paying an income of 4.8%.

"More exciting is the M&G Global Dividend fund. It has a lower income at 3.3%, but is looking for dividend growth. Newton Global Higher Income is also a top performer; it is now paying almost 5% and has a solid investment process that won't let you down."

Andrew Bell, chief executive of Witan Investment Trust


"There are times when the biggest decision on a market is whether it's too low. That was undoubtedly the case in 2009 as the FTSE moved from 3500 to 5500, but 2011 will be different.

"We believe stockpickers should be able to add value in this environment, so we've moved into active managers. We're also increasing our exposure to emerging market economies. Although everyone is quite bullish on emerging markets, which can be a red flag, we believe growth will be generally quite scarce and we want to be fully involved.

"However, my strongest choice is private equity. It was hit very hard in the downturn and the rout has left some opportunities.

"If you believe that the global economy is on some kind of track to recovery, no matter how weak, then the net asset values of private equity trusts are likely to perform better than the wider economy. These trusts are on enormous discounts to net asset value.

"We have bought 3i, which has had to go through a restructuring process but has now come out the other side. We have also bought Harborvest, which listed in London in the spring. The shares had an offer that allows investors to sell at the original purchase price in October of next year, so we can get our money back if something unexpected happens.

"We also bought Electra, which is currently trading at a discount of 35% to net asset value, despite coming through the downturn with flying colours."

Ted Scott, director and head of stewardship at F&C Investments


"Looking at the market as a whole, shares are still a good place to invest. There will be a scramble for yield, and those assets paying a superior income are likely to win out.

"A lot of large, blue-chip companies are increasing their dividends and are often paying an income far higher than that available in the bond market. We think these companies will do extremely well.

"Looking at particular sectors, we believe telecoms will be an area of interest, with companies such as Vodafone and BT showing strength. Utilities are also likely to do well. The electricity sector has been a laggard and is due to catch up, so we're interested in companies such as National Grid, Scottish & Southern and Centrica.

"We also like Shell. Whereas BP remains quite risky operationally, Shell has a more certain outlook and pays a 5% to 6% dividend.

"In general, we like mining shares that are exposed to emerging market growth and sitting on modest valuations. The market doesn't believe that commodity prices can be sustained and is already discounting quite a big drop. Rio Tinto should do particularly well."

Stephen Barber, economic and markets adviser at Selftrade


"There are two areas that I think will do well in 2011 - Brazil and Turkey. I'm all in favour of investing in emerging markets through the BRIC economies (Brazil, Russia, India and China), but I think Brazil offers the most stable growth. It has the most robust political and economic system, with a strong banking sector and abundant natural resources.

"Turkey also offers very good value. It's the gateway to the East, and is a much safer investment than some of the economies that surround it. The country has a stable political environment and is now relatively easy to access through exchange traded funds.

"No emerging market is without risk, but this is a very interesting area."

Algy Smith-Maxwell, fund manager at Jupiter independent funds team


"Technology is likely to be a big theme for 2011. We hadn't owned anything in this sector for 10 years but we bought into it again a year ago.

"We think it has a long way to run - the world economy is in the early stages of a technology replacement cycle that started in 2006 and could justifiably be expected to run into 2015. Valuations are palatable, and investors have learned lessons from their bad experiences in 2000.

"We've tended to invest with Stuart O'Gorman, who runs the Henderson Global Technology fund and is a very safe pair of hands. We've also moved into the smaller cap arena on occasion, and in this case we like the Polar Capital Global Technology fund. It's important to remember that it may not be the big companies - like Cisco or Microsoft - who will be the biggest beneficiaries of this growth trend.

"We also think that rising inflation may be an issue. As a result, we don't see a lot of upside in government bonds from here, which should underpin the relative attractions of equities and corporate bonds."

Gavin Haynes, investment director at Whitechurch Securities


"A promising sector for 2011 is UK Smaller Companies. There is plenty of value to be had in this area, yet not many people are talking about it. It was hit hard as investors became more risk-averse, but it performed better than the wider market in 2009 and 2010.
"It's the old 'elephants don't gallop' cliché: it's much easier for smaller companies to grow their earnings, compared with large ones.

"We like managers such as Harry Nimmo at Standard Life and Philip Rodrigs at Investec. They put the emphasis on good quality smaller companies that can grow their earnings."

Patrick Connolly, spokesperson for Chase de Vere


"It has never been more important to diversify a portfolio by holding a range of different assets including shares, fixed interest and commercial property.

"Fixed interest plays an important role in a balanced portfolio, but the yields on gilts and investment-grade bonds have fallen significantly and may now be overpriced.

"There's a strong case for slanting fixed interest exposure toward high yield bonds. Despite rising in value by nearly 15% over the past year, the valuations there still look more attractive.

"If the economy takes a downward turn then high yield bonds may suffer, but even then they should provide some protection against falls in the equity markets. Our current preferred funds include L&G High Income, M&G High Yield Corporate Bond and Standard Life Investments Higher Income."

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