Although most investment managers and strategists surveyed for Investment Executive’s “Outlook 2011” report assume a relatively sunny year ahead for the global economy and equities markets, they suggest that minimizing risk should be a major theme for your clients this year.

The upbeat outlook, which envisions U.S. economic growth of at least 2.5% and perhaps as much as 4%, is the base case — the most probable scenario — identified by the experts. But it’s not the only possibility.

There are a number of serious issues that could cloud those forecasts; and the odds that one or more of these issues could develop into serious problems are higher than the investment managers and strategists would prefer.

For example, there is some fear of a U.S./China currency war over what the U.S. sees as China’s unfair policy of keeping the value of its currency relatively low; also, there is worry of a flight from U.S. Treasury bonds because of concern about the U.S. economy.

Jean-Guy Desjardins, chairman, CEO and chief investment officer of Fiera Sceptre Inc. in Montreal, whose base case calls for 3%-3.5% U.S. growth, puts the odds of these events occurring at an uncomfortably high 30%-40%. Either situation could squash growth.

Other risks this year include: American consumers staying away from retail stores because unemployment remains high; a substantial drop in China’s economic growth as its government applies the brakes too hard in an effort to curb inflation; and resources prices falling because of investors buying fewer future contracts, even though demand for the commodities remains strong.

And although economic growth, corporate profits and equities’ share-price appreciation could be quite good this year, the medium term (2012-15) may be lacklustre or even include a return to recession as governments deal with the mountains of debt they have accumulated in their efforts to get their economies moving after the global credit crisis and recession.

The U.S. will struggle to keep its economy growing even moderately for quite a few years, says Jurrien Timmer, portfolio manager and director of investment research with Fidelity Man-agement & Research Co. in Boston. A financial crises may occur, he says, but, on balance, the U.S. will muddle through.

Here is an overview of what investment managers and strategists think of the major asset classes; how they are positioning their own and their clients’ portfolios; and the types of securities they favour:

> Fixed-Income. Government bonds will lose value as soon as interest rates start to climb. But if your clients plan to hold them to maturity, there is no reason to reduce holdings. Corporate bonds, particularly those rated BBB to A, have the potential to be upgraded if the issuer’s financial results improve.

In the corporate high-yield space, consider REITs and infrastructure bonds that have attractive returns and aren’t very risky.

Holding European sovereign debt is not recommended. But if you have clients with an appetite for risk, Ireland’s bonds could do well; analysts think their prices overestimate the risk involved. Bonds of the senior emerging countries of Brazil, Russia, India and China are also worth considering. Many analysts include preferred shares in fixed-income, and these can be excellent buys — especially Canadian preferred shares, as their dividends qualify for the federal dividend tax credit.@page_break@> Canadian Equities. Most analysts believe that gold prices, and share prices for gold-related companies, will stay high and even climb because of the uncertainty overhanging the global economy.

There is also enthusiasm for energy and base metals stocks based on continuing strong growth in emerging markets. Even if growth slows in these countries as they seek to curtail rising inflation, that will only be a temporary setback.

However, over the medium term, huge increases in oil production in Iran and Iraq could reduce oil prices, as could a significant shift to natural gas from oil by North American companies taking advantage of continuing low gas prices. Oil prices could also come down if speculators lose interest.

There’s less enthusiasm among analysts for other Canadian equities, including those of financial services companies, but there are still quite a few good opportunities in specific stocks this year; these may also turn out to be solid longer-term holds.

> Foreign Equities. Dividend-paying, large U.S.-based multinationals with dominant market positions and popular brands are probably the safest equities. They are not U.S. companies in the sense of relying on U.S. demand; rather, they are global firms, so they will do well as long as global economic growth holds up.

Companies relying on growth in the U.S. should perform well if U.S. growth surprises on the upside or if there are particular reasons that could increase earnings, such as new products, cost-saving initiatives or current unreasonably low valuations.

Also, some sectors may do better than others. For example, U.S. health-care stocks currently trading at low valuations should see some upside in the longer term because of the aging population. And technology stocks should have some pizzazz — the computer industry is undergoing a renewal phase as many businesses and consumers are upgrading their hardware and software.

Europe is a contradiction at the moment. The southern “periphery” countries are very weak because of sovereign defaults or the risk of default resulting from huge government debt loads. However, the economies of Germany, Switzerland, the Netherlands and Norway are comparatively healthy, and stocks in these markets are worth considering.

Japan’s economy is weak but its large exporters are also under-valued and worth considering.

> Emerging Markets. China, other Asian emerging markets and Brazil are considered good bets because of their continued strong growth is expected. The only caveat is that investors have been pouring money into these markets and, if they reduce their pace of investment, share prices could weaken.

> Currencies. Most economists expect the Canadian dollar to remain around par with the greenback this year. But the loonie could increase in relative value if oil and base prices are stronger than expected. If that happens, the return in C$ on U.S. investments would be lower than the return in US$.

Currency hedging or investing in funds that hedge currency is a good way to avoid this risk. IE