As economic uncertainty clouds whether equities are poised to deliver better results next year, value opportunities have emerged in certain sectors and stocks, according to Morningstar's head of equities strategy.
"Within the Australian market sector performance has varied, highlighting the importance of diversification within portfolios to reduce volatility," Ross Bird said.
The latest Morningstar Special Report recommended an overweight position in materials, consumer staples, energy, financials (banks and insurance) and telecommunication services.
"Both BHP and RIO recently reiterated their view of a strong long-term outlook, underpinned by increasing supply challenges and developing world demand growth," Bird said.
"The performance of resource stocks in comparison has been disappointing. Nevertheless, the risk-averse investment climate is presenting high-quality resource stocks at deep discounts to fair value - very good buying for the patient, medium-term investor."
He said the relative sector performance highlighted investor preference for sustainable, high yields, which was a theme he believed would continue into 2012.
Morningstar forecast a telecommunications dividend yield of 8.3 per cent for the 2012 fiscal year, banks at 7.5 per cent and insurance at 7.4 per cent.
Zenith Investments senior investment analyst Steven Tang said 2011 was a tough year for fund managers as they were not taking "massive bets" with their portfolio positioning at this stage.
"Managers have found it very hard to pick stocks in this environment, in terms of being very macro-driven, as to what previously worked," Tang said.
"Last year was very much all about materials, which held up very well, but this year materials have come off and that's been reflected in the managers waiting to see what materialises in Europe.
"What have stood up are all the safety stocks - consumer staples, telecommunications and utilities have held up better."
