The trend has persisted for several months now, and shows little sign of abating: In May, 75% of survey respondents favoured large-caps, roughly even with the level in prior months’ surveys. The expectation appears sensible to us (though it may well take longer than respondents expect to materialise): Given that small caps have performed so well for so long, and their valuations look high relative to historical norms, a large-cap rally looks increasingly likely.
Sector Confusion
In contrast to their relative certainty about large-caps, there was no consensus among asset managers responding to the survey on which sectors were likeliest to outperform or underperform over the next twelve months. This may mean that r
ecent market volatility has undermined managers’ confidence in areas which had proved popular in recent surveys, such as energy. Respondents were in more agreement when it came to regions, however, with 37% selecting Japan as the best performer over the next 12 months, and 43% predicting that the US would be the worst-performing market in the period.
Equity Research
In the May survey, we also asked respondents to comment on their practices for hiring and deploying their equity analyst staffs. Respondents spanned the gamut from large organisations with more than 50 analysts, to small-shops that rely entirely on research purchased from outside sources to drive their equity portfolios. (Across all respondents, a sizable percentage said they purchased at least 20% of their research from outside sources.)
Relatively few said they preferred to hire analysts straight out of school and train them. Instead, the vast majority preferred to hire individuals with at least some industry experience. Although the numbers are too small to infer a correlation, we note that the two firms indicating they only hired straight out of school also had the lowest turnover on their analyst staffs. In general, however, respondents indicated relatively low levels of analyst turnover, with most specifying annual turnover rates of 10% a year or less.
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