This investor confidence is important to fund groups. Some 35% said trust levels needed to recover a lot to make their industry profitable while 55% said a little improvement was needed.
Managers were less certain about which investment styles would outperform. The proportion of managers who expected growth shares to outperform value ones fell to 33% in May from 41% in April. Sentiment on value shares remained about th
e same at 22%.
Large firms were also said to be less likely to outperform over the next 12 months, falling to 33% from 46% last month. Half of managers were neutral between the outperformance of large and small companies – an increase of 12 percentage points from April.
This month managers lowered their expectations for global stockmarket performance, as measured by the MSCI World Index in euros. Only 24% said they expected returns of more than 10% over the next year, down from 36% last month.
Some 57% of managers expected returns in the range of 5-10% compared with 49% who expected such returns in April. These more conservative estimates may be a reflection of the recent stockmarket rallies, particularly in Europe, or of concerns about the global economic outlook. Also the level of returns in euros may be affected by currency shifts.
Bond outlook
There was a sharp shift in sentiment towards long term fixed income products over their short term counterparts. This month some 53% favoured long term – those with maturities of at least three years – versus 47% for short. This reversed a trend of several months in which managers preferred short fixed income instruments to long by a wide margin.
Although corporate bonds, compared with government bonds, were expected to be the top performer over the next year the outlook for government debt improved in May. Some 19% said it would outperform, up from 4% in April.
Despite the recent appreciation of the euro some 78% of fund managers said it would perform best over the next 12 months. The euro recently hit an all-time high against both the dollar and sterling.
While a handful of managers favoured the dollar some 56% said it would be the worst performer over the next year. The currency’s recent depreciation should both reduce the American current account deficit and aid US exporters but managers did not see a recovery in the short term.
Asia excluding Japan held on to the top spot in terms of market performance over the coming year although it did not recover to the levels seen earlier in 2003. After that region’s 31% America came second with 23%.
Emerging Europe experienced a sharp rise in positive sentiment, moving to 18% from 6% in April. Some 47% said Japan would be the worst performer over the next year followed by 20% for Europe excluding the UK.
Sector tie
Managers chose financial services and healthcare as the top performing sectors over the next year, with 16% each. This was a drop in sentiment for financial services. Telecommunications came next with 13%.
Hardware and consumer goods were expected to offer the worst performance with 20% and 15% respectively.
Most fund groups said they planned to launch new funds in the next year with balanced funds the preferred choice of asset class. Share funds followed with 28%. Alternative investments and fixed income funds received 23% and 20%.
Morningstar’s European offices conducted the survey from May 14th-23rd. The participants, 64 fund management groups from 12 countries, on average managed €56 billion (£40 billion) and offered 86 retail funds each.
