Corporate debacles at well-known American firms such as Adelphia, Enron, ImClone, Tyco and WorldCom are causing markets to plummet by scaring investors all over the world. Yet managers generally presented a bullish attitude on investing though a note of caution was evident in a few areas.
Some 90% of fund management groups said equity [share] funds would be the best performing asset class over the next 12
months. This level has remained steady since Morningstar first asked this question in January.
Stockmarket returns over the next year will be 10% or more according to 55% of managers. Only 11% said returns of 5% or less were likely.
New funds
Over the next year 90% of managers plan to launch new funds. Rather than conventional funds the managers said guaranteed funds would dominate launches.
These types of funds offer investors different levels of protection; some agree a certain level of return while others promise security for some percentage of the invested capital. However, in the UK the Financial Services Authority imposes strict rules on which products can be called guaranteed.
Despite high expectations for the performance of shares only 29%, compared with 61% in May, said equity funds would attract the most money. For the first time managers said fixed income products – those investing in bonds - would dominate new product launches.
Favourite sectors
Financial services remained the managers’ favourite sector. Some 41% said it would provide the strongest performance over the next 12 months. Natural resources gained popularity, rising five percentage points to 25% in June.
More managers said the technology, media and telecoms (TMT) sector would perform the worst over the same time period. In contrast, in March 44% had ranked TMT first while this month 48% ranked it worst.
Property was also disliked with 30% expecting the poorest returns from this area.
Turning to managers’ currency preferences the dollar declined in popularity last month. Some 59% ranked it the worst performing currency over the next year, up from 41% last month.
Meanwhile the euro retained its top spot as 80% said it would perform best. The yen gained slightly at the dollar’s expense, with the proportion ranking it worst falling to 27% from 43% in May.
Asia top
Asia excluding Japan is attracting a lot of attention with fund managers looking for opportunities outside America.
Asia continued to be a favourite market over 12 months with 48% of managers saying it would perform best. Europe excluding the UK also gained, coming in second place with 25%.
Worries about the stability of some Latin American countries were apparent. Latin America passed the US to be named the market with the worst prospects for the next year. There was a significant leap in negative sentiment, 44% up from 24% in May. The equivalent figure for the US fell eight percentage points to 22% in June.
Overall managers were evenly divided on investment style. Some 22% said value would be the best performer over the next year, 29% favoured growth while 48% were neutral. Managers were also evenly split on what size of company was likely to outperform.
Morningstar’s European offices conducted the survey from June 19th- July 2nd. The participants, 58 fund management groups from 10 countries, on average managed €49 billion (£31 billion) and offered 98 retail funds.
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