Several areas of the August survey highlighted this sentiment. The question of the month revealed that 75% of managers said they forecast the bear market would end in either the third or fourth quarter of this year.
Almost all of managers said equity [share] funds would be the best performing asset class over the next 12 months. Nearly half of those surveyed expected shares would be at least 10% higher over the next yea
r while only 4% expected a negative return.
Despite these optimistic expectations for equities half of managers thought fixed income funds would attract the most money over the next year. Equity funds lagged behind with 31% believing they would appeal most to investors.
This may be a reflection of managers anticipating investors’ worries about the stockmarkets. Other investors may be shifting the asset allocation of their portfolios to reduce any overexposure to shares.
Yet the majority said equity funds will dominate new fund launches in Europe. The proportion that favoured fixed income funds fell to 14%, down from 22% in June.
Regular plain vanilla funds are expected to dominate European fund launches, knocking guaranteed funds from the top position they held last month. That could be construed as a sign of investors regaining confidence.
Sector picks
Some 34% of managers thought the financial services sector would be the top performer over the next year, a slight fall from the previous survey.
The proportion that expected the technology, media and telecoms (TMT) sector to outperform rose for the time this year.
Natural resources fell to 14% from 25% in the previous survey. This could be a positive sign for the stockmarkets, as some natural resources such as gold tend to rise when market expectations are poor.
Property took the place of worst expected performer over the next year away from TMT. Almost half of managers ranked it last. Only 34% thought TMT would be worst, down from 48% in June.
Managers remained consistent with their pick for best performing currency over the next year, with 80% choosing the euro. The dollar and yen tied for the worst expected performance with 40% each.
The dollar had a slight reprieve as the proportion of managers ranking it worst fell from 59% in June while the number disliking the yen rose from 27% in June.
Asia favoured
Managers looked to Asia for the top market performance over the next 12 months with most managers ranking Asia excluding Japan top. The outlook for Japan improved while Europe excluding the UK was the second most favoured region.
Close to half of managers said Latin America had the worst prospects for the next year. Debt problems and political uncertainty have plagued countries in the region.
Managers also shied away from the US, which was ranked worst by 24%. The American economy and markets have been battered from many sides in recent months including an array of corporate scandals and uncertainties about a war with Iraq.
Niklas Tell, the editor-in-chief at Morningstar Europe, said: “When examining the survey responses it is worth remembering that the consensus view can be wrong.
“Markets in which managers appear to be pessimistic could perform well in the future.”
August was the first month managers displayed a preference in company size. Normally opinion is evenly split between large and small caps but this month 44% favoured large firms while only 15% preferred the prospects for small companies. The strong performance of larger firms often relies more heavily on a positive outlook for the global economy.
Morningstar’s European offices conducted the survey from August 12th-23rd. The participants, 49 fund management groups from 9 countries, on average managed €55 billion (£35 billion) and offered 82 retail funds.
