2017: time to rethink diversification?

At this time of year we are usually asked to give our 'outlook' for investments over the coming 12 months. Most years there is at least one area that seems to stand-out as having some potential.

However, given the ever-increasing amount of uncertainty in the world, and many markets looking fair value to slightly expensive, no major asset class is looking particularly attractive right now. So my first tip for 2017 has been a simple one: make sure your portfolio is diversified.

However, this comes with a caveat: I don’t think the usual rules will apply to that diversification. Bonds yields are already at very low, or even negative levels, and stocks markets are moving very much in tandem at the moment. So it may be that, in 2017, we perhaps rethink the obvious and specialise more.

Three niche equity ideas

Most investors will have a decent 'core' equity portfolio already. One that perhaps contains funds investing in UK equities, global equities, emerging market or Asian equities and maybe even a US or European equities.

There are lesser known sector-specific funds that could work well on the periphery of your portfolio as well.

For example, infrastructure is a sector that has recently come to the fore as government policy around the world has begun to shift from monetary to fiscal stimulus. Many projects are backed by governments and long in tenure, making the sector less volatile than the wider market. Yield can also be found. We like VT Infrastructure Income, Legg Mason IF RARE Global Infrastructure and First State Global Listed Infrastructure funds.

Insurance is less talked about but offers similar characteristics. Many contracts are a legal requirement, so demand is steady, making the industry less volatile generally. A more modest but steady yield is also available. Polar Capital Global Insurance is worth a little look.

On a country-specific basis, India is still our long-term favourite. The recent cash crackdown to tackle fraud has led to a slight sell off, but Government policies are pro-business and it is an oil importer, not exporter, with a big domestic economy and fewer ties with the US than many other emerging markets. Ashburton India Equity Opportunities and GSAM India Equity Portfolio are both funds to consider in this area.

By Sam Slator, head of communications, Chelsea

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Sam's views are her own and do not constitute financial advice.
Published on 14/12/2016