Over two thirds of fund management groups surveyed said it was very likely or quite likely that Germany will fall into another recession in the near future. Managers do not think Germany’s economic troubles are confined to only that country. Some 78% said its plight is having a quite severe or very severe impact on other euro-zone economies.
Yet managers were less concerned about deflation, a fall in the general level of prices. Only a quarter of managers thought it was a possibility. On a brighter note for the region the euro is expected to be the top performing currency over the next year by 70% of managers. The dollar came in second place.
Europe excluding the UK had a tougher time when managers were asked about market performance. It fell from first to third place in November. America leapt to the top spot as 31% of managers said it would perform best over the next 12 months. Asia excluding Japan made up for some of the ground it lost in October, coming in second.
Latin America and Japan topped the predicted worst performers list with 47% and 33% respectively. It was an improvement for Latin America. Recent elections in Brazil seem to have removed some of the uncertainty that had been worrying investors.
The deterioration of sentiment on Japan indicates managers are not yet convinced by promises of strong financial sector reform by the new head of the country’s Financial Services Agency. Managers were also downbeat about the Japanese currency. Some 67% of managers said the yen would be the worst performing currency over the next year.
Sector picks
Technology, media and telecoms (TMT) made a strong showing in November. Nearly a third of managers said the TMT sector would be the top performer over the next year. Financial services and life sciences tied for second place. Property remained the least loved sector with close to a half of managers saying it would deliver the worst performance.
Every management group questioned expected equities to be higher in the next 12 months. About half of managers said equities would rise between 5-10% while 40% said 10% or higher.
Niklas Tell, the editor-in-chief of Morningstar in Europe said: “It also seems that fund groups think investors will become less risk averse following the recent gains in the stockmarkets.
"The fund flow expectations no longer exclusively favour fixed income products.”
When asked which asset class will attract the most money over the next year managers were tied between equity and fixed income funds. This reversed a trend started in June when managers first said fixed income products would receive more net inflows than equity funds.
Managers were confident that equity funds would be the best performers over the next year. Over 80% chose them over balanced and fixed income products.
Fund launches
Nearly all fund groups were planning to launch new funds over the next 12 months but no consensus emerged as to what type. The greatest proportion of managers, 37%, said balanced funds would dominate new launches but nearly the same amount voted for equity funds.
In terms of the types of funds to be launched guaranteed products – those that offer an element of capital protection – remained on top, though the sentiment slipped to 38% from 43% in October. Conventional funds were not far behind with 27%.
Increasingly, managers are favouring large firms over small ones. Over half of managers said large caps, as an investment style, will be the best performers over the next year. Only 16% favoured small caps with the remainder of managers neutral.
The survey revealed a slight bias towards growth companies. The majority of managers were neutral about whether growth or value would perform best but 29% preferred growth firms.
Morningstar’s European offices conducted the survey from November 15th-25th. The participants, 73 fund management groups from 12 countries, on average managed €54 billion (£35 billion) and offered 89 retail funds each.
