The year bodes well for many asset classes, but in our opinion equities and commodities will fight for pole position.
We believe equities will produce good returns of around 8pc-10pc for the year, but these figures hide an expected return of 15pc-20pc in the first half, likely to be eroded by poorer markets in the second half.
The property market may be fairly neutral by comparison, likely to return 4pc-5pc, and gold may disappoint investors after a decade of good performance with a possibility of negative returns.
Bonds' 30-year "bull run" is nearing an end and the asset class is likely to produce negative returns for all but the most active managers.
Loose monetary and fiscal policies will continue to support the US economic recovery and provide impetus for robust growth along with strong emerging economies. As a result, we expect to see a stronger-than-consensus global recovery. But the momentum could peak in the first half of the year as the effects of the current loose monetary policies bring inflationary pressures to the fore and encourage rate hikes.
This would affect emerging markets more than the West as many policy-makers in the region have been slow in their response. In contrast to 2010, developed markets will outperform, or at least match, Asian and emerging markets.
Extreme investor optimism has resulted in many equity markets being technically overbought in the short term. Thus a correction is likely but this could present a buying or switching opportunity.
In such a scenario we believe allocations to commodities, resource, energy and technology stocks may be rewarding. Small and mid-cap stocks in the US and UK, and mid-caps in Germany, also represent good opportunities. For the more adventurous, frontier markets will be worth considering given that they have been left behind in this global rally. Most of the gains in 2011 are likely to come in the first half of the year. Timely exit strategies may be necessary to lock in profits.
Mark Harris is head of multi-manager at Henderson Global Investors
