Advisers suggest banking profits from risky parts of the market and moving into high-quality shares or cash instead, writes Clare Francis. We offer some tips.

Move out of emerging markets and into the US

Investors in the best emerging markets funds have tripled their money over the past five years, but most managers think the sector is in a bubble, according to a survey by Merrill Lynch last week.

Guy Monson, of Sarasin Chiswell, an investment house, said: “Emerging market valuations are sky high and things are looking very risky. I would much rather buy HSBC, which is making inroads into China, than an overvalued Chinese bank.”

Monson recommends high-quality international companies instead – particularly American ones as they should benefit from the weaker dollar. He likes Microsoft and Cisco Systems as well as HSBC, Unilever and British American Tobacco.

Remember that if you sell funds to realise profits you may be liable for capital gains tax if you make more than £9,200 – or £18,400 if the fund is in joint names.

Quit commercial property

Bank of England governor Mervyn King is not just worried about the equity markets; he warned last week that the shops and offices market is looking shaky.

Commercial property returns fell 1.5% in October, according to the Investment Property Databank, and are down 2.6% over the past three months.

Mark Dampier of adviser Hargreaves Lansdown said: “I think it will be flat for the next few years. I’d take profits and then look to buy back in a couple of years when there will be better opportunities.”

Back bonds

The Bank of England indicated last week that interest rates will have to fall to at least 5.25% to keep inflation on target, traditionally a good time for bonds because prices rise when rates fall.

Jim Leaviss at M&G, a fund manager, said: “We have seen the end of the bond bear market. That said, I would focus on high-quality corporate bonds and gilts rather than high-yield bonds, which could still be hit by the credit crunch.”

Dampier recommends Old Mutual Corporate Bond fund and Artemis Strategic Bond.

Make the most of cash

Savers who want to move profits into cash can benefit from some of the highest savings rates for years. London Scottish Bank is offering a one-year fixed rate bond at 7% on balances above £2,000. Given that rates could fall next year this is a great time to lock into a fixed deal.

If you have moved out of an equity fund and want to shelter in cash, you could try an investment fund with big cash holdings where the manager has flexibility to move back into shares when the time is right. Edward Bonham Carter, of Jupiter Undervalued Assets, and Ted Scott of F&C UK Growth and Income have high cash balances at 18% and 11% respectively, Citywire said.

Take a tracker mortgage

To benefit from lower rates next year, go for a loan that tracks Bank rate rather than one linked to the lender’s standard variable rate. Standard Life Bank last week demonstrated the dangers of the latter when it increased its SVR by 0.15 percentage points – to 7.46% – even though Bank rate has not changed since July. The increase will affect an estimated 40,000 borrowers.

Nationwide has the best two-year tracker for purchases at 5.48%, while the best deal for those remortgaging is from Cooperative at 5.59%.

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