This is a result of several European countries breaching the stability pact which is the framework of rules established to govern the behaviour of the euro-zone economies. For example, member countries must keep their budget deficits under 3% of GDP except in exceptional circumstances.
As the characteristics of euro-zone countries have converged in recent years many managers placed more emphasis on analysing the region in terms of sectors rather than countries. The breaking of agreements that encourage such convergence of their economies could lead to changes in investment process according to the latest Morningstar European fund trends survey.
So far France, Germany and Portugal have breached the stability pact that euro-zone countries had pledged to follow. Some 73% of managers said these breaches made it more important to consider country factors when analysing euro-zone bonds. Some 63% said it would increase the importance they place on country factors when analysing the shares of euro-zone companies.
Niklas Tell, the editor-in-chief of Morningstar in Europe, said: ”This is a reversal of the trend in recent years towards managing funds, particularly those investing in the euro-zone, on a sectoral basis.
“Although sectors remain important the balance has to some extent shifted back in the other direction.”
Yet managers did not necessarily see the breaching of the stability pact as negative. Some 43% said the breaking of the pact by these three countries would have a positive impact on the euro-zone economies. A quarter said the impact would be neutral while 29% said negative.
British membership
Looking at the issue from an investment perspective most managers said the impact of Britain announcing in the near future its intention to join the euro-zone would be positive. Some 27% were neutral on the issue while only 7% were negative.
Manager sentiment towards the performance of Asia excluding Japan fell sharply this month, from 40% in March to 29% in April. It remained the top choice for best performing region over the next year but only narrowly beat Europe excluding the UK which garnered 26%. America came third with 23%.
Latin America improved the most, rising from 5% in March to 14% in April. Managers overwhelmingly chose Japan as the worst performing region for the next 12 months.
Financial services gained in popularity as the expected top performing sector over the next year with 21%, up from 18% in the last survey. Healthcare and software followed with 16% and 13% respectively.
In terms of worst performance utilities and consumer goods topped the list with 20% and 19% respectively.
The euro cemented its position as the managers’ favourite currency over the next year. It gained two percentage points, gathering 79% of the vote this month.
Positive returns
The fund groups surveyed were confident of positive stockmarket performance over the next 12 months. About half of managers said global shares, as measured by the MSCI World index in euros, would rise by 5-10% while 36% said more than 10%. Only 3% expected negative returns.
Managers were evenly split about what kind of funds would be launched in Europe over the coming year. Some 29% each said balanced funds or share funds. Alternative products received 24% while fixed income funds had 18%. Some 90% of fund groups surveyed intended to launch new funds this year.
A growth investment style was preferred to a value approach by 41% to 20%. Over recent months an increasing number of managers have made a choice between the two investment styles instead of remaining neutral.
Some 46% of managers favoured the performance of larger firms to that of smaller firms. Yet smaller companies gained ground from last month, rising to 16% from 9% in March.
Looking at fixed income products managers overwhelmingly preferred corporate debt to government debt over the next year. There was also a growing preference towards short term debt to long term.
Morningstar’s European offices conducted the survey from April 9th-17th. The participants, 70 fund management groups from 12 countries, on average managed €50 billion (£35 billion) and offered 78 retail funds each.
