2017 looks set to be an interesting year. Markets are riding high and investors are more positive than they have been since the financial crisis as central banks switch from loose monetary policy to supporting fiscal stimulus and infrastructure spending.

US mid caps

Markets have rallied strongly on the back of Donald Trump’s election victory and may have got ahead of themselves somewhat. However, we continue to expect the US to grow in 2017 and should Trump’s campaign promises be realised then mid-sized US companies stand to benefit from the extra infrastructure spending.

Fund pick: Schroder US Mid Cap – This is a US small and mid cap fund managed by a very experienced and well-resourced investment team led by veteran investor Jenny Jones. Jones is a cautious investor and believes avoiding losses is essential for growing capital over the long term. This approach will cause the fund to lag during strong bull-markets but over time has proved successful. The team conduct bottom-up analysis to find companies that fit into one of three categories: steady eddies, turnarounds or under-appreciated growth.

Infrastructure

2017 is the year we should see a return of inflation as rebounding oil prices and the weak pound in the UK boost prices. However, the challenge is getting ahead of the trade. Inflation expectations have already risen with many inflation assets having already risen in response. Real assets such as infrastructure have built in inflation protection as the rental income generated from these investments rises with inflation. The good news is markets have yet to factor in higher inflation protection expectations in infrastructure assets which means there is still an opportunity for investors.

Fund pick: International Public Partnerships – An infrastructure investment trust that invests directly in global projects, currently over 110, that have public sector-backed cashflows. The fund invests solely in availability-based projects, such as schools and hospitals that earn pre-determined contracted revenue. The fund does take on some construction risk but this should help drive capital and income growth. The portfolio is very diverse and offers a high level of inflation protection.

Protection

Markets have been driven by consensus views over the last few years making it difficult for investors to get an edge. But as we enter 2017 there is a divergence of views, some believe we are at the beginning of a strong growth phase which will drive up stock markets, particularly those companies that invest in cyclical stocks. Others remain more pessimistic. Investors should hope for the best and plan for the worst. It is better to buy protection in a portfolio when it is relatively cheap than after markets have fallen and you are already suffering a loss.

Fund pick: Invesco Global Targeted Return – The fund invests in macro-economic themes with a view to delivering a positive return over three years, no matter what the global environment. The portfolio typically holds 20-30 ideas across each asset class making it very diversified. The focus on macro-economic trends means the fund can be flexible and position to protect investors from volatile or falling markets.

Adrian Lowcock is investment director at Architas