2010 - Potentially a 'make or break' year

Chris Burvill, manager of Gartmore's Cautious Managed Fund, believes that 2010 has the scope to be a "make or break" year for most asset classes, with the lacklustre emergence from recession over the final quarter of 2009 showing that a strong, sustained recovery is anything but assured.

"Many consumers experience difficulties servicing debts even with rates at current levels. Tax rises and public sector cutbacks will only add to the hurdles of keeping the recovery going later this year."

Although a number of commentators and investment managers are taking comfort in the belief that these concerns are well-known and anticipated by the market, Chris urges vigilance to developments as they arise: "Those that believe all the bad news is priced in need to be careful - the simple views can occasionally be right. Let's see how markets respond once the tightening actually starts."

In terms of expectations for the coming year, Chris expects to see interest rates rise more than generally assumed, and sees a tough time for gilts. However, corporate bonds should continue to perform well, although perhaps at a slower pace than last year. Among equities, he expects a challenging environment for interest rate sensitive businesses, preferring large defensive companies.

"The case for a sharp move either way in gilts is significant, and volatility within bond markets is likely to lead to volatility in other asset classes."

There is, as always, potential opportunity where there are challenges. Chris believes that managers of balanced funds which can increase or decrease exposure to markets should be able to respond well to volatility over the coming year, because of their ability to switch between asset classes. However, timing these switches is likely to be as important as ever.