This optimism is reflected in the performance of the Japanese stockmarket. The Morningstar categories focusing on Japanese equities have been among the top performers so far this year. The Japan Mid/Small Cap Equity category was up 20.2% [all numbers in sterling terms] and the Japan Large Cap Equity category was up 16.3% as of October 20th.
However, the categories that have dominated in 2005 have rece
ived less attention from managers. The Latin America Equity category was the best performing year-to-date – rising over 42% as of October 20th. In January only 8% of managers predicted Latin America would be the best performing over the following 12 months. In September the proportion favouring the region had grown to 15% but a fifth of managers also said it would return the worst performance.
Emerging Europe
Similarly, funds in the Central and Eastern Europe Equity category have risen an average of 35% this year. In January only 15% of those surveyed said Emerging Europe would be the best performing region over the coming year. It fell to 6% of managers in September.
It is still a little early to tell how accurately managers have forecast the performance of the world stockmarket. At the beginning of the year most fund managers predicted that global equities – as measured by the MSCI World Index in dollars – would rise between 5-10% over the next year. Ten months on the forecast is looking optimistic. So far this year the MSCI World Index is down 0.172% in dollar terms as of October 20th.
Meanwhile, fund managers consistently favoured short term (one-three years) fixed income instruments over long term ones. However, their choices for which type of bond would perform best did shift.
In January government bonds of developed countries were deemed likeliest to be the best performing over the next 12 months by 43%. High yield corporate bonds came in next with 30%. By September 39% still favoured developed market government bonds but 22% were looking towards emerging market government bonds – up from 17% at the start of the year. The rest of managers were evenly split between corporate high yield and investment grade fixed instruments.
Style shifts
This year has also seen large fluctuations in sentiment towards growth and value companies. A partiality towards growth firms was mildly evident in January when 32% said it would be the best performing investment style over the coming 12 months. Some 23% preferred value while most – 45% - were neutral. However, by September a significant 53% chose growth as their preferred investment style and only 6% favoured the prospects for value companies.
Morningstar editors and analysts conduct monthly surveys of some of the largest fund management groups across Europe. In most cases the respondents are chief investment officers, strategists or a fund manager who was a member of the group’s asset allocation committee. All surveys dating back to December 2001 can be accessed at via the link on the right.
