Serious Money: The next popular counterintuitive investment could be companies focusing on capital spending.

With Germany's surprising economy now making the front page of The Economist, is it time to take profits in one of Serious Money's better investments this year? It is truly amazing how quickly an idea that seems deeply controversial one minute can become conventional wisdom the next. German equities were a very contrarian bet not so long ago but, if The Economist is a good bellwether, many investors have moved to embrace it. As it happens, I think the German story could run and run: I don't think successful investing requires a contrarian stance at all times. Eventually, to be right, the herd has to join in - and I suspect that this particular pack has only just started to rumble.

So where is the next unconventional idea? That's always the hardest question to answer, at least with any conviction. The best place to start is where the market consensus actually lies: the ideas that we can disagree with, if that's the way we wish to invest. More generally, it's always important to know what other investors are thinking, whether or not we have a contrarian approach to markets.

Thanks to those nice folks over at Merrill Lynch, the global investment bank, we have an excellent survey of investors' beliefs published on a regular basis, with most of the results now publicly available. There are arguments about the merits of such surveys: some critics think that far from telling us anything useful about the future, they merely give a good summary of the most recent past. Others find them valuable leading indicators.

The most recent survey by Merrill Lynch of the global fund management community provides ammunition to both sides. In terms of global growth prospects, for example, we find the world's investors have gone from being quite pessimistic to very positive in the space of two months. As a matter of fact, we didn't really need a survey to tell us that: equities have gone up (usually a clue as to growth expectations). And cyclical sectors and stocks - those most exposed to the economy - have generally done spectacularly well (a really big clue about the changing expectations of investors).

But in a very interesting discussion of the future, Merrill asked investors whether they would continue to favour companies that give a lot of their cash flows back to shareholders in the form of dividends and share buybacks. It is quite a clever question, as the mantra of many smart investors for the past few years has been "give me the money". Companies that have resisted the temptation to splash out on acquisitions or other forms of growth have seen their share prices rise, particularly when they have also given plenty of their profits back to shareholders.

Part of all this stems from the overinvestment that took place during the bubble years: companies spent all their profits and as much as they could borrow on a capital spending and merger spree that ended very painfully. The pendulum swung, as it always does in financial markets, and investors began to treat companies that reinvested in their businesses as radioactive. Consequently, capital spending has been relatively low: corporate bosses have behaved quite rationally and given as much cash as they could lay their hands on back to their shareholders.

Some people think this has led to widespread underinvestment: companies have actually been damaging their long-term growth prospects by not replacing their depreciating capital stock, let alone thinking about growth. Globally, hard evidence for all of this is mixed, but here in Europe there is actually quite a strong case supporting these arguments.

This seemingly arcane debate has enormous implications for all investors. If companies are now going to invest, and markets are willing to let them, then we need tools to identify those companies most likely to be spending. More properly, we need to spot those companies that can start investing and earn a decent return. It is very easy to make a poor investment, as virtually every phone and technology company proved during the 1990s. If spare cash is going to be spent rather than given back, bond yields could rise a long way.

Investors answered the Merrill capital spending question in classic schizoid style: roughly half the world's money managers want to see capital spending increase and the other half want to see companies continue to return cash to shareholders.

Markets are already giving hints that they want more investment: all of a sudden, companies involved in mergers or acquisitions (M&A) - either as buyers or sellers - are seeing their share prices go up. This is a distinct change: M&A activity has generally been treated with huge suspicion for the past five years.

If the rush is on to spot companies that are going to start spending their cash, I think we can feel comfortable in taking a back seat: there are more intelligent things to do with our money. In a gold rush, buy the company that makes shovels. In a capital spending boom, buy the companies that make and sell capital goods.

One other contrarian idea is to buy US equities. They have done relatively poorly for quite some time and are deeply out of favour, particularly because everyone thinks the dollar will fall a lot further. Right now, no foreign investor seems to think the US equity market has much of a future. For those so inclined, this is a glorious opportunity to buy into the world's biggest and best equity market at precisely the moment when nobody else is interested.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.