6 Investment Themes for 2012: Fund Managers

With less than two weeks left in 2011, investors are looking at challenges and opportunities ahead to better position themselves for the coming year.

"The economy is recouping lost ground and appears to be regaining some momentum, particularly in the private sector," said Diane Swonk, chief economist at Mesirow Financial, in a statement. "The last few years have taught us, however, that the U.S. is not an unsinkable vessel and can quickly lose steam."

The economic outlook for the U.S., as well as for the global economy features predominantly the downside risk associated with the European crisis.

Many portfolio managers expect the recession in Europe to fully play out in the first half of 2012, as well as the launch of a third round of quantitative easing -- or QE III -- by the Federal Reserve.

"The European situation is likely to end with significant amounts of money printed once Germany decides what role it wants to take," James Dailey, portfolio manager at Team Asset Strategy Fund, told the International Business Times in an email.

"Either Germany will stay and tolerate the European Central Bank printing vast amounts of money, force countries like Greece to depart and print their own currency, or depart the euro and bring back the deutsche mark," Dailey added.

U.S. GDP growth will expand approximately 2.25 percent to 2.5 percent in 2012, which remains below the longer-term average, according to forecast made by Alan Gayle, senior investment strategist at RidgeWorth Investment.

"Very worrisome macro issues have created an atmosphere of pervasive pessimism," said Kent Croft, portfolio manager at Croft Value Fund.

"Bottom-up fundamentals of companies tend to be drowned out in times like there, creating an attractive entry point for investors heading into 2012," Croft said.

Six Investment Themes for 2012 from Croft

1. Natural Gas

Natural gas prices should begin to benefit from liquefied natural gas exports and increasing sources of domestic demand. Croft believes that exploration and production companies with large natural gas exposures will be prime beneficiaries of higher natural gas prices going forward. Companies with exposure include Southwestern Energy Co. (SWN), Ultra Petroleum Corp. (UPL) and Williams Companies Inc. (WMB).

2. Fresh Water

The supply and demand function for fresh water is a compelling theme with far-reaching consequences. As water demand grows via emerging markets while supply is reduced via pollution and other forces, providers of water infrastructure and pump and sanitation systems should see market growth and pricing power. Companies with exposure include Valmont Industries Inc. (VMI) and Xylem Inc. (XYL).

3. Agriculture

Croft remains bullish on the overall theme of agriculture and rising crop prices via ever-increasing world food demand. Emerging market growth has driven up consumption patterns for higher-protein food sources which have led to higher prices of grain, corn, soy, etc. The major beneficiaries are producers of fertilizer, irrigation systems, and farm equipment. Companies with exposure include Valmont Industries Inc. (VMI), Monsanto Co. (MON), Mosaic Co. (MOS), Potash Corporation of Saskatchewan Inc. (POT), Trimble Navigation Ltd. (TRMB) and Deere & Co. (DE).

4. Broadband Internet

Broadband internet penetration growth has caused IP traffic to increase eightfold over the past five years with continued robust growth expected in the future driven by mobile devices and bandwidth-intensive streaming video. The key beneficiaries are companies who provide better service and enrich the online experience via their software, hardware, and applications. Companies with exposure include ADTRAN Inc. (ADTN), Rovi Corp. (ROVI), DTS Inc. (DTSI), Apple Inc. (AAPL) and Qualcomm Inc. (QCOM).

5. Timber

Despite a continued weak domestic housing backdrop, timber remains an attractive investment opportunity. This is largely due strong foreign demand prospects and an eventual bottom in the U.S. with stocks in the group trading at a discount to net asset values with solid dividend yields. Companies within the sector that have exposure include Seattle-based Plum Creek Timber Company Inc. (PCL) and Federal Way, Washington-based Weyerhaeuser Co. (WY).

6. Electric Grid

A lack of investment in the electric grid by developed countries over the past decade and longer has created pent-up demand for new infrastructure as population growth and increasing consumption trends drive higher overall demand. Companies with exposure include ABB Ltd. (ABB), General Electric Co. (GE) and Valmont Industries Inc. (VMI).

Will 2012 present a buying opportunity?

At this point, "all possible bad news is baked into stocks and there is no credit being given to companies for actually delivering on earnings," said George Young, co-portfolio manager at Villere Balanced Fund. "At cocktail parites people wnat to talk about how bearish they are and how little they have in the market."

"Sellers are exhausted and this is how bull markets form," Young added.