Of course, safe assets like government bonds have also continued to perform as rock-bottom interest rates underpinned the asset class.
Could 2013 signal a more meaningful move out of safety into risk, out of quality into value? Are investors ready to shake off the pessimism caused by the great financial crisis of 2008?
Performance of sectors year-to-date
Source: FE Analytics
The good news is that the political uncertainty that has weighed on market sentiment is gradually lifting. We think we are at the end of the beginning of the European crisis.
Over the last two years investors have been seeking to gauge who was in charge, what their reaction functions were and what their willingness to backstop the system was.
We are now at a point where we know we are in the hands of the Germans and the European Central Bank (ECB), that the Germans want deeper union and, based on Mario Draghi’s [president of the ECB] comments, that the ECB is willing to step in as required.
We may not like Germany’s pro-austerity stance and the ECB "put" may be at a strike which is lower than we would like, but some of the extreme political risk is reduced and the situation is now uncertain rather than inscrutable.
Elsewhere, the Chinese political transition has occurred as planned and the new US government has been chosen.
Inevitably we are still hostage to political brinkmanship in an environment where fiscal policy is so important, but market participants have begun to better understand political risk.
The bad news is that the cyclical environment is still challenging. In the normal way of things, one catalyst for a sustained turnaround in riskier assets would be signs of a turn in the economic cycle.
The problem on this front is that we expect more of the same in 2013 – low interest rates and anaemic growth.
In this environment, a strategy that favours higher-quality stocks and that is focused on enhancing yield through asset classes such as high yield debt should continue to pay off, but the absence of a convincing, robust recovery will continue to weigh on more cyclical assets.
In the absence of cyclical triggers to refresh our portfolio, we are using valuation as our primary guide and in this regard the environment is getting a lot more interesting.
Firstly, safety is clearly looking expensive. With negative real yields on cash and bonds, we are increasingly incentivised to take more risk.
Endless quantitative easing makes cash our least-favoured asset class, we would argue that bonds only merit inclusion in portfolios due to their diversifying characteristics and we increased our allocations to equities in 2012.
In fact, even based on conservative valuation assumptions, such as cyclically adjusted price-to-earnings ratios, equities look attractive.
Within equities, our core exposure continues to emphasise quality but we have started to tactically take advantage of pockets of extreme value.
For example, we bought European equities in June, and Japan as we moved into the autumn. It is interesting to note that the value opportunities reside in the developed markets rather than the emerging markets.
According to the Chinese horoscope, 2013 is the year of the snake. If anything, I think that what many investors currently perceive as "safe haven" assets could turn out to be the snake lurking in the grass next year.
Johanna Kyrklund heads up three multi-asset funds in the IMA unit trust and OEIC universe, including Schroder Diversified Growth. This fund has returned 20.21 per cent over a five-year period, beating its All Share benchmark by around 8 percentage points.