Fixed income assets, gold, and other commodities are key investment themes to watch for in the year ahead, investment forecasters said on Thursday.

At the Empire Club of Canada’s annual investment outlook event in Toronto, David Rosenberg, chief economist at Gluskin Sheff & Associates said a secular shift in attitudes is occurring, with investors turning to assets that provide income.

Rosenberg noted that even after the massive rally in equities of the past nine months, investors continue shift funds into fixed income assets. He pointed to figures showing that in recent months, equity mutual funds in the United States have continued to see an outflow of funds, while inflows into fixed income funds have hit record high levels.

“[Investors] need the income,” he said. “This is a secular shift in attitudes toward your portfolio.”

Less than 7% of U.S. household assets are held in bonds, compared to more than 25% in equities. Rosenberg expects this to change as investors increasingly turn to income-producing assets such as bonds, real estate investment trusts and dividend-producing investments.

“That’s the part of the portfolio that is going to expand the most over the course of the next five to 10 years,” Rosenberg said, noting that demand for such income will be particularly critical for baby boomers who are beginning to retire.

“I’m very bullish on anything that can drive an income stream,” he said.

Price of gold continues to climb

Gold is another key area that forecasters are watching. The price of the precious metal continues to climb as the U.S. dollar deteriorates in value, central banks print money, and demand for the safe haven rises. And this trend is set to continue, according to Nick Barisheff, president of bullion investment company Bullion Management Group Inc.

This year, Barisheff expects the price of gold to rise to at least US$1,300 to US$1,500.

“The events of the past year bode well for gold in 2010,” he said at the Toronto event. “Unless governments around the world stop creating massive amounts of new money, the price of gold will continue to rise.”

One of the most significant themes of 2009 in terms of gold, Barisheff noted, was central bank buying. For the first time in 20 years, central banks became net buyers of gold rather than net sellers, with countries such as India, China and Russia adding to their gold reserves. Barisheff expects this trend to continue this year.

Another factor likely to support the price of gold is the Chinese government’s move to encourage and facilitate gold buying by the Chinese public – a group with a strong propensity for saving.

“With their government making no secret of its displeasure with the U.S. dollar, and with few other safe investment options available,” said Barisheff, “the Chinese public could provide the fuel to move the gold price to new highs.”

Rosenberg agreed that the prospects for the price of gold are strong, particularly since gold production levels have stabilized in recent years. He is also bullish on other commodities, as strong growth is Asia is set to drive up demand.

“Commodities are overall, I think, a good place to be,” he said.

In terms of equities, Rosenberg is bearish on the prospects. But he admitted that the outlook for Canadian equities appears much more favourable than the U.S. The heavy weighting of the Toronto Stock Exchange in materials stocks helps the index outperform the S&P 500 in both bull and bear markets, he said.

“That puts the Canadian dollar in a secular bull market, and it also puts the Canadian market in a secular period of outperformance,” he said.

Also taking into consideration the relatively lower debt levels and deficits in Canada versus the United States, Rosenberg said Canada is in better shape overall.

“I don’t remember a time when Canada looked this good relative to the U.S.,” he said.

IE