The majority of fund managers said the dollar would be lower against the euro, pound and yen in 12 months’ time. For example, 86% said the dollar would be lower against the pound in a year. Over three years managers were more evenly split about its prospects. Only in the case of the yen was there a strong opinion with 70% saying the dollar would be lower against the Japanese currency in three years.
Over the coming year 41% of managers said an investment in American shares would be successful as measured in dollars. Non-dollar investors would of course be subject to currency fluctuations if their investments are not hedged back into their home currencies.
Currency hedging was the most important factor for a non-US investor to consider when investing in America according to 31% of the managers surveyed. Other key issues for investors were the development of a company’s profits and valuation.
Looking at the American market managers preferred the prospects for large companies over smaller ones by a wide margin – 84% for large firms versus 16% for small ones. In terms of investment style there was no clear view on whether growth or value shares would outperform – managers were split 50-50.
Chinese currency
Generally those surveyed expected the Chinese renminbi to be allowed to move more freely against the dollar within the next year. Almost half said it was possible while 33% said it was likely and 7% said very likely.
In terms of relative currency performance, sentiment on the euro and yen converged this month. Some 49% said the euro would be the best performing currency over the next year while 42% said it would be the yen. This was a drop in the relative outlook for the euro and an improvement for the Japanese currency.
Asia excluding Japan and Europe excluding the UK tied for the best performing market over the coming year with 26% of the managers’ votes each. Japan saw a big drop in sentiment, falling to 17% from 24% last month. Half of the managers said America would be the worst performing market. Some 17% chose the UK.
Managers were divided about which stockmarket sectors offered the best and worst opportunities over the next year. Energy and telecommunication garnered slightly more votes for the best performer with 21% and 19% respectively. However, some 18% said energy would be the worst performer.
Industry trends
The proportion of fund groups planning to launch new funds in 2005 rose this month. Equity funds were set to dominate these new launches. Over half said these share funds would be the most popular funds launched while 21% said that “other” funds would dominate.
Most managers expected global equities, as measured by the MSCI World Index, to return 5-10% over the next year. Almost a fifth said 10-15% and 4% expected negative returns.
Morningstar’s European offices conducted the survey from November 15th-22nd. Some 48 fund groups from 14 countries participated. On average they each managed €51billion (£36 billion) and offered 86 retail funds.
