With a number of headwinds set to lash markets in 2017, investors will be looking at ways to prepare portfolios for any potential changes in market conditions. 
Market uncertainty can make asset allocation a more challenging task, as long-term investment decisions can often depend largely on the assumption of more stable conditions.
Yet, while a number of potentially market-impacting events are scheduled for next year, there are also several sources for optimism.
Inflation looks likely to make a comeback, particularly in the US and UK, while global growth is forecast to remain steady and lead to a resumption of interest rate rises.
Below, FE Trustnet asked market commentators which funds are best for investors seeking growth and capital preservation.
Perpetual Income & Growth Investment Trust
Kepler Partners research analyst Alex Paget says equity income funds should remain a go-to option for investors in 2017 especially given the uncertain outlook facing fixed income.
“While there are concerns surrounding the future of UK dividends let alone Brexit, we believe investors should still be allocating to UK equity income funds – especially given the quality of managers in the space,” he said.
Paget highlights Invesco’s Perpetual Income & Growth Investment Trust, run by FE Alpha Manager Mark Barnett, as an example.
“Across his various closed and open-ended funds, he has a total return approach to the market and has a clear focus on managing risk,” he said.
“Typically, he tends to focus on higher quality companies with sustainable earnings. He emphasises that ‘vigilance and patience’ are key factors in this process which aims to find companies that can offer income across varying macro-economic conditions – regardless of any underlying currency, commodity price or interest rate changes.”
The £854m trust has been a top performer in the IT UK Equity Income sector over the past decade, returning 109.91 per cent, though it has struggled in 2016, losing 7 per cent.
Performance of trust vs sector and benchmark over 10yrs
Source: FE Analytics
“Our pick of his portfolios at the moment, though, is Perpetual Income & Growth. It is the portfolio he has run the longest and differs slightly from his Edinburgh Investment Trust and his open-ended Invesco Perpetual Income and High Income funds, given he has slightly more flexibility and can allocate more to mid-caps,” Paget said.
“On top of that, it is currently trading on a historically wide discount of 7.5 per cent due to poor sentiment towards UK stocks - having trading on premium at points over the past 12 months and on an average discount of less than 2 per cent over the past three years.”
“It is also worth noting that the trust has a high weighing to non-UK stocks (as well as UK-listed stocks with a high proportion of international earnings) and therefore should benefit if sterling remains weak.”
The trust has a clean ongoing charges figure of 0.65 per cent and currently yields 3.66 per cent.
Adrian Lowcock, investment director at Architas, says with investors rotating from stable growth and bond proxies towards value stocks it can be challenging for investors not to get caught out by swings in sentiment and shifts in valuation.
As such, he suggests the Threadneedle Global Select fund, which invests in around 70 – 110 stocks and looks for companies which offer a rising or high return on investment.
The £1.1bn fund, run by William Davies, has again been a top quartile performer over the last decade, returning 128.49 per cent, but has struggled this year, underperforming the MSCI AC World index.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
“The manager does lean towards growth companies, but stock selection is made with the global macro picture in mind which can lead to changes in the nature of the analysis. As such the manager William Davies does hold some value positions.”
Currently, the fund has a high weighting to technology stocks, with Alphabet (the parent company of Google), Amazon.com, Tencent and Activision Blizzard among its top 10 holdings.
While this is traditionally seen as a growth investment strategy, the fund also has a large weighting to the unloved financial sector.
Threadneedle Dynamic Real Return
Sticking with the Threadneedle theme, Amaya Assan, senior investment research analyst at Square Mile Investment Consulting and Research suggests the £469m Threadneedle Dynamic Real Return fund, run by Toby Nangle.
“Columbia Threadneedle has an impressive track record of successful asset allocation and we see this as a strength of the group. We see this fund as a natural extension to what the multi asset team has been doing successfully for a number of years but which has an unconstrained approach, allowing full flexibility to invest in the best asset class and thematic ideas of the group,” she said.
“The multi asset team believes that they can successfully exploit price inefficiencies between asset classes using the insights from their research teams, and that this gives them a perspective advantage.”
“This philosophy is utilised to the fullest extent in this strategy where returns are ultimately driven by the team's asset allocation capabilities.”
The five crown-rated fund aims to provide a positive real rate of return above inflation over the medium-to-long term and to provide a positive return over a three-year timeframe.
Over the past three years, the fund which is 44 per cent weighted to fixed income and 31.6 per cent in equities, has returned 18.56 per cent.
Performance of fund vs sector, benchmark and MSCI AC World over 3yrs
Source: FE Analytics
Performance is ahead of both the benchmark and sector but lags the MSCI World index though it is worth noting that these returns have been made with half the volatility of the equity index.
Assan said: “We think this is a fund that should appeal to investors that require growth which is ahead of inflation but who are also seeking to minimise capital volatility to a level meaningfully below that of equities.”
“Whilst the manager does attempt to minimise capital drawdown, investors should be aware that this is not an absolute return vehicle, and therefore investor capital may vary overtime.”