My top investment fund ideas for 2017

This week I'm keeping my investment thoughts short and sweet, listing my predictions and favourite funds for 2017.

My strongest hunch is that emerging markets will outperform next year, led by China, which is intent on pumping up its credit-fuelled recovery. Other emerging markets might also benefit from more stable commodity prices especially the oil price including some Latin American countries as well as Russia. I also think Donald Trump's bluster about fairer trade won't amount to much in the short term, although the lower taxes and higher infrastructure spending might boost demand for emerging-market firms who export to the US.

Vietnam could outperform its peers, since it's well positioned to take in more Western capital. The easiest way in is to buy one of the reasonably liquid investment trusts that invest in the country, chief among them the Vietnam Opportunity Fund (LSE: VOF). A worthy runner up is Vietnam Enterprise Investments (LSE: VEIL). It's also worth looking at the SSIAM Vietnam Value Income and Growth Fund.

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At a regional level, I'm warming again to Latin America, and especially to some of its local government and corporate bonds, which might represent compelling value if local inflation rates have peaked. My favourite way in is through the Aberdeen Latin American Income Fund (LSE: ALAI), which has a hybrid mandate, with 48% invested in government bonds and the rest in equities (lots of banks).

Despite my adventurous enthusiasms, I concede that most investors will probably stick with developed markets this year, and that leaves me with a quandary. I think the eurozone will surprise on the upside this year. Core eurozone economies are picking up speed, as is local inflation, helped along by strong credit creation and lax monetary policy.

I'd be tempted to focus on mid- and small-cap equities on the continent. If you're looking for tracker funds, consider the iShares Euro Stoxx Mid ETF (LSE: DJMC) and the iShares Euro Stoxx Small Cap ETF (LSE: DJSC). The stand-out unit trusts are the Henderson European Smaller Companies Fund and the Standard Life Europe ex. UK Smaller Companies Fund. The best investment trust in this sector is probably the TR European Growth Trust (LSE: TRG).

Although I remain cautiously optimistic, inflation could still throw a spanner in the works. It's almost a certainty that rates will rise in some key markets, partly as a result of foreign exchange moves and increased commodity prices. Assets with some element of inflation proofing might make sense. On this score, my favourite play is the Ruffer Investment Company (LSE: RICA). It is currently 42% invested in inflation-proof bonds. These investments have already made good money, but I think the portfolio is conservatively positioned if inflation rates do surprise on the upside.

Last but by no means least, we should see a sustained pick up in merger and acquisitions (M&A) activity. That might be good news for private equity firms. NB Private Equity (Amsterdam: NBPE) is very US-focused, and specialises in industrials, technology and energy. It also has a strong weighting towards income-producing private-equity debt (23% of the total holdings). The fund has a good track record, producing 4%-plus income and trading at a 20%-plus discount to net asset value (NAV). The M&A potential within the energy sector is huge, which is why I am a massive fan of Riverstone Energy (LSE: RSE), a US-focused play on unconventional shale (I own shares in this fund). Riverstone is up 38% over the last 12 months, but still trades at a 10% discount to NAV.

In the news this week

Star fund manager Neil Woodford will launch a fund targeting 5% income at its outset, a higher level than his existing Woodford Equity Income, says Laura Suter in The Daily Telegraph. After the first year, the fund to be known as Woodford Income Focus aims to deliver at least 20% more income than that delivered by the FTSE All-Share index over a rolling five-year period. Like the £9.6bn Woodford Equity Income fund, the new fund will invest mainly in UK stocks, but can invest more in overseas companies. It will also differ from the existing equity fund, which holds over 8% in unquoted stocks, in that it will invest only in listed companies.

Woodford's targeted 5% dividend yield, based on the offering price, is "pretty punchy", Mark Dampier of fund supermarket Hargreaves Lansdown tells The Daily Telegraph. "This will limit the opportunity for growth. So, for me, this fund will be very much for those seeking and prioritising income over growth." Woodford's investment firm, Woodford Investment Management, will launch the new fund on 20 March this year in order to capture investors' Isa contributions before the end of the tax year.

Details about costs and charges for the fund have not yet been disclosed. Woodford's Equity Income, which was the top-selling fund among retail investors in 2015, underperformed the market in 2016, returning 3.2%, relative to 16.8% for the FTSE All-Share index. Shares in his £760m Patient Capital Trust are currently down 12% since it launched in April 2015.