Which investments are poised for a strong 2013 showing? Here are 10 portfolio moves to consider:
1. MEGA-CAP STOCKS GO BIG
"The new leadership within the equity market is mega caps," Mary Ann Bartels, technical research analyst at Bank of America Merrill Lynch, wrote in a recent research report.
Mega caps -- the top 50 U.S. companies by market value -- are "reversing a bear trend that had been in place since 2000," Bartels adds. "This reversal signals a new secular bull market is underway for the top 50, or mega caps."
The U.S. market's giants also have considerable foreign sales exposure, which favors them should non-U.S. economies shine brightest. Exchange-traded proxies for the group include Guggenheim Russell Top 50 Mega Cap ETF and iShares S&P 100 Index Fund. Both portfolios' top-three holdings are Apple Inc., Exxon Mobil Corp. and General Electric Co., but the iShares fund, with 100 issues, is less concentrated.
2. HIGH-QUALITY COMPANIES STAY QUALIFIED
The definition of "quality" in this bull market is a large company with strong finances, visible earnings growth and a global footprint. A dividend makes the stock even more attractive.
High-quality stocks are "quite inexpensive," Savita Subramanian, Bank of America Merrill Lynch equity and quantitative strategist, noted in a recent research report. Plus, she adds, "industry leaders with clean balance sheets in a wide variety of sectors rank well on the quality scale."
Top-flight firms on Merrill's list include PepsiCo Inc., IBM Corp. and Caterpillar Inc. Quality plus growth equals stability, adds Brian Belski, chief investment strategist at BMO Capital Markets.
"When things become more uncertain, investors tend to place a higher premium on areas of the market delivering consistent results," he noted in a recent research report. Stocks rated "outperform" on BMO's quality screen include Google Inc., Starbucks Inc. and Gap Inc.
3. DIVIDEND GROWTH PAYS OFF
"Dividends still matter," Nolte says. "There remains a lack of good choices for income investors," he adds. Ultimately this quest for yield leads to stocks. Moreover, investors have no dearth of dividend-payers: 80 percent of the S&P 500 constituents now pay a dividend. Nolte's favorites include multinational leaders Caterpillar Inc., Novartis AG, IBM and McDonald's Corp.
That said, investors should focus on the business, not the yield. A high yield can reflect a poor-quality company, a troubled stock, and a dividend that could be in jeopardy.
4. EUROPE GOES UP
Euro zone worries for now seem priced into market valuations and expectations. The MSCI Europe ex-U.K. Index, a proxy for the euro zone, rose 19 percent for the year through Dec. 20.
Moreover, two-thirds of managers responding to the Russell survey, for example, do not see a euro-zone nation exiting the monetary union, and better than half are maintaining current exposure to the continent.
Says Nolte: "Valuations on a lot of those markets have gotten very inexpensive."
5. CHINA BREAKS OUT
China hasn't taken part in the global rally this year, but that could change.
Strategists at Russell Investments predict a soft landing for China's economy, with a cyclical recovery pushing 8 percent annualized growth for 2013. Managers polled in Russell's most recent quarterly Investment Manager Outlook were also bullish, with, 62 percent of respondents expecting China's new leadership to stabilize the country's declining growth.
In addition, the Russell survey showed bullishness for emerging markets generally, with almost seven in 10 managers optimistic about the region's development following 2012's disappointment.
6. GO FOR THE GOLD
How does $2,000 an ounce sound as a price for gold?
That's the target Merrill Lynch analysts have set for the yellow metal by year-end 2013 -- about 20 percent higher than now.
The easy-money policies of the European Central Bank and the Federal Reserve will propel gold higher, according to commodity strategist Francisco Blanch at Merrill Lynch. Rising inflation expectations should also be supportive. Notably, Blanch sees gold at $2,400 an ounce by the end of 2014. Merrill's commodity team is also bullish on other precious metals including silver and platinum.
7. REAL ESTATE BUILDS
The U.S. housing market is laying a new foundation.
Supply and demand are finding greater equilibrium. Home sales are up, inventory is down, and mortgage rates are at historic lows. In Russell Investment's most recent quarterly Investment Manager Outlook, 61 percent of respondents were most bullish on real estate for 2013, an all-time survey high. The housing recovery should create construction jobs and boost related sectors such as furniture, building materials and financial services, according to Merrill analysts.
Real estate investment trusts have been on a tear. Real estate mutual funds, many of which invest in REITs, were up 17 percent as of Dec. 20; much of that interest is driven by yield.
8. INDUSTRIALS STEAM AHEAD
An improving economy boosts cyclical sectors of the market, and industrials stocks are prime beneficiaries. These stocks rely on corporations' capital outlays, and many analysts expect companies to spend more liberally with less uncertainty plaguing the global picture.
Industrials also have the greatest proportion of high-quality stocks of any other U.S. market sector, according to Merrill Lynch, and many of those have the added attraction of being mega caps; Caterpillar, for example.
9. TECHNOLOGY PLUGS IN
Technology stocks came under pressure late in 2012, but the sector's oversized exposure to non-U.S. markets could work in its favor next year, according to Merrill analysts. Tech companies also tend to have strong cash flow, little debt and some pay dividends. "Improved visibility on the domestic policy front coupled with signs that Europe is beginning to heal could have very positive implications for capital spending and global growth," a Merrill research report recently concluded.
S&P Capital IQ sees improved demand for semiconductor equipment, considered one of technology's most cyclical areas.
10. "DOGS OF THE DOW' HAVE BARK AND BITE
For a hefty helping of size and income that plays into both the mega cap and dividend themes, investors can scoop up the 10 highest-yielding stocks in the Dow Jones Industrial Average, also known as the "Dogs of the Dow."
This value-oriented tactic calls for buying the index's 10 highest-yielders at the start of each year. The Dogs didn't hunt so well in 2012, gaining just over 7 percent on a price-only basis through Dec. 20 versus a 9 percent return for the 30-stock benchmark itself.
The 2013 Dogs won't be unleashed until the calendar turns, but as of Dec. 20 the 10 would be AT&T Inc., DuPont, Hewlett-Packard Co., Intel Corp., Johnson & Johnson, McDonald's, Merck & Co. Inc., Microsoft Corp., Pfizer Inc. and Verizon Communications Inc. These stocks yield 4 percent on average, according to Merrill Lynch.
Two exchange-traded proxies for the Dogs strategy: Elements Dogs of the Dow ETN, which is linked to the Dow Jones High Yield Select 10 Total Return Index, and ALPS Sector Dividend Dogs ETF, which actually picks from among S&P 500 stocks. In addition, Dogs account for six of the top-10 stocks in iShares High Dividend Equity Fund.
Some of these Dogs fit the "safety and income at a reasonable price" theme that David Rosenberg has been vocalizing for some time now. The chief economist and strategist at Toronto-based investment manager Gluskin Sheff + Associates Inc. tells clients to squeeze as much income out of a portfolio as possible, the better to handle an investment environment where slow-growth and austerity reign.