Analysis

The probability of an economic recovery is very good, but the promised pay-off could be disappointing because, in many instances, we are being asked to pay happy prices for happy outcomes.

Fund positioned to capitalise on ongoing recovery

All 138 funds in IMA Balanced Managed sector register positive returns over the past 12 months due to managers' increased equity exposure

As macroeconomic data releases become more mixed and investor risk appetite shows signs of peaking, so stock and sector leadership within the equity market has changed.

As the New Year progresses, we are encouraged by improvements in the US economy, as demonstrated by Q3 growth in GDP and other leading economic indicators.

In the chaos of 2008, more or less the only investments that made money that year were conventional government bonds, where yields hit historical lows and total returns for gilts were over +12%.

The most important driver for markets is the perception that monetary policy is tightening across the globe. Some of this is healthy tightening, as we have seen in China.

After a return of more than 20% sterling terms in 2009, European equity market valuation is back to more normal levels at 12x forward earnings, but still attractive on historical terms with a 4% expected dividend yield.

It has been a positive start to the UK's 2010 dividend-reporting season with many companies re-instating or raising dividends.

Following strong recovery in the second half of 2009, commercial property delivered a total return of +2.18% for the year (IPD Monthly Index December 2009), driven principally by capital growth of around 8% during Q4 2009 - a figure that would have been...