Generally fund managers were split as to when the Federal Reserve will start raising interest rates. Over half of the managers surveyed said it would be after the summer but almost a third said the Fed would move rates up at its August 10th meeting. Some 16% said it would happen during the meeting in June.
Although higher rates seem inevitable most managers generally agreed that the central bank would have moved fairly moderately one year after it first
raises rates. About two-thirds said rates would be one to two percentage points higher a year after the first move upwards. The remainder were split between a slightly higher and a slightly lower forecast.
Despite recent speculation most managers said that the European Central Bank will not move to cut rates over the next six months. Only 14% expected lower rates in that time period while 2% expected a rate rise.
Manager sentiment on Japan shot up in the April survey. For the first time the country surpassed Asia excluding Japan as the expected best performing region over the coming year. Some 40% said Japan would be the top performer while only 23% chose Asia ex Japan, down significantly from 42% in the previous survey.
Also for the first time since the survey began in December 2001 the yen overtook the euro as the predicted best performing currency over the next 12 months. Some 41% said the yen would be the strongest while the proportion backing the euro fell to 30%.
Dollar direction
Looking at the euro/dollar exchange rate most managers said the dollar would be within +/-5% of its current level against the euro [which averaged almost $1.19 to €1 during the survey period] in a year’s time. Just over a third said the American currency would be 5-10% higher against the euro.
America remained out of favour with fund managers. The dollar was by far expected to be the worst performing currency while managers also said America would be the worst performing region.
Managers said energy, telecommunications and media would be the top performing sectors over the next 12 months. The utilities sector was expected to be the worst performer, followed by hardware and consumer goods.
Meanwhile sentiment towards value shares dropped significantly this month. Only 10% of those surveyed said value firms would outperform their growth counterparts. Some 45% said growth companies would outperform while the rest were neutral.
Morningstar’s European offices conducted the survey from April 19th-26th. Some 60 fund groups from 12 countries participated. On average they each managed €53 billion (£36 billion) and offered 89 retail funds.
