Press centre

17 December 2009

AIC poll of fund manager predictions for 2010

Managers optomistic about market prospects

• Majority (58%) of managers expect FTSE to end year between 5500 to 6000
• Fund managers tip Emerging Markets as the top performing region in 2010
• Fund managers tip resources as the top performing sector
• Over one quarter (28%) think gold will be the best performing asset
• 72% think investment companies will issue zeros to overcome credit constraints

The Association of Investment Companies (AIC) today published the results of their seventh poll of investment company fund managers to gauge their views for the year ahead.  The AIC received responses from fund managers representing £17.3 billion of assets, 21% of the AIC’s Membership by assets.

Fund managers were generally optimistic about market prospects with nearly three quarters of fund managers (74%) predicting that markets will rise in 2010, and just over a quarter (26%) of managers disagreed.  Consequently most managers (50%) thought equities would be the best performing asset class in 2010, but interestingly over a quarter (28%) thought gold would perform best.  Managers were equally optimistic about the prospects for the FTSE 100 with the majority (58%) predicting the market would close the year between 5500-6000.

Resources (including oil) was the sector tipped to outperform, knocking the last three years’ favourite sector, blue chips, off the top spot and Emerging Markets were tipped to be the best performing region in 2010. Not surprisingly managers thought low growth (28%) and the recession (22%) were the greatest threats to equities, whilst better global growth than expected (29%) and the belief that interest rates will remain low (23%) were the managers’ greatest causes for optimism.  

Interestingly, managers remain divided on whether they will increase their gearing in the next six months with 28% planning to increase their gearing and 22% planning to decrease it.  The managers’ answers may be influenced by the difficulty in getting hold of cost effective financing from banks.  Nearly two thirds (63%) of managers did not think financing was more readily and cost effectively available from banks and nearly three quarters (72%) thought more investment companies will issue zeros to obtain cost effective gearing.

Equities tipped to be best performing asset class but gold rush carries on
Most fund managers (50%) thought equities would be the best performing asset class in 2010 but significantly, over a quarter (28%) of managers thought gold would perform best. Just 5% of managers opted for commercial property and 5% opted for cash.
Which will perform best in 2010?

Equities	Gold	Bonds	Residential Property	Commercial Property	Cash	None will do well	All will do well	Don't know
50%	28%	0%	0%	5%	5%	0%	5%	9%

FTSE Prospects
Most managers were optimistic about the prospects for the FTSE 100 with over half (58%) predicting  the FTSE 100 would close between 5500-6000.  Some managers were more restrained with 21% predicting the FTSE 100 would close between 5000-5500, whilst 11% predicted the FTSE would close between 4500-5000.  There were also some ultra bearish managers with 5% predicting the FTSE would close between 2000-2500 and 5% predicting between 3000-3500.

Where do you think the FTSE 100 will close at the end of 2010?

Under 2000	2500-3000	3000-3500	3500-4000	4000-4500	4500-5000	5000-5500	5500-6000	6000-6500
0%	5%	5%	0%	0	11%	21%	58%	0%

Low growth and recession biggest threats to market returns
Just over a quarter of fund managers (28%) predicted that low growth was the biggest threat to markets over the next year, and just over one fifth of managers (22%) were concerned about the possibility of  the recession continuing.  Last year the recession was the fund managers’ greatest concern followed by a lack of liquidity due to the credit crunch.

However, when asked what gave them the greatest cause for optimism in 2010, better global growth than expected was the most commonly cited choice (29%), followed by the belief that interest rates will remain low (23%) and earnings and dividends will increase next year (18%).

Recession	Low growth rates	Geopolitical Instability	General Election	Lack of liquidity	Lack of consumer spending	High inflation	Low inflation	Threat of global terrorism	Improvement in bond market	Increase in interest rates	Other
22%	28%	0%	6%	6%	16%	11%	0%	0%	0%	11%	0%

Resources (including oil) are top sector choice
Just under a quarter of fund managers (24%) favoured resources including oil as their top sector for 2010, knocking the last three years’ favourite, blue chips, off the top spot (16%), and then the  technology, utilities and financials sectors (all 12%).

Which sectors do you expect to perform the best in 2010?

Blue Chips	Technology	Manufacturing	Smaller Companies	Utilities	Resources (including oil)	Media	Financials	Commercial Property	Private Equity	Hedge Funds	Alternative Energy	Ethical Funds	Biotechnology /Pharmaceuticals	Other
16%	12%	4%	8%	12%	24%	4%	12%	0%	0%	4%	4%	0%	0%	0%

Emerging Markets tipped to be best performing region
Emerging Markets was predicted to be the top performing region by most fund managers (35%) in 2010, and the second and third choices are also usually defined as Emerging Markets. Latin America was the second most popular choice as just under a quarter of managers (22%) predicted this to be the best performing region and 18% of managers believed the Far East Excluding Japan would perform best.

Which geographic regions will produce the best stock market returns in 2010?

Far East Ex Japan	Far East Inc Japan	Japan	Emerging Markets	UK	US	Europe	Latin America	Middle East/ north Africa	Other
18%	0%	4%	35%	0%	4%	4%	22%	13%	0%

Changing Gear?
Fund managers were divided on whether they will increase their gearing next year with 28% planning to increase their gearing over the next six months and 22% planning to decrease their gearing.  This differs considerably from last year when 46% of managers planned to increase their gearing and just 17% planned to decrease their gearing.  However, a considerable 28% are taking a “wait and see” approach to increasing gearing and 22% said they had no plans to change their gearing levels.

The managers’ answers this year may well be influenced by the difficulty in getting hold of cost effective financing from banks.  Nearly two thirds (63%) of managers did not think financing was more readily and cost effectively available from banks and nearly three quarters (72%) thought investment companies will issue more zeros to obtain cost effective gearing.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies said: “After a strong market revival this year, fund managers are generally optimistic about the prospects for 2010, with most expecting to see markets rise and the FTSE end the year in positive territory.  Interestingly this year’s ‘gold rush’ is tipped to continue with over a quarter of managers predicting that gold will be the top performing asset.  With the recovery underway resources are tipped to be the best performing sector next year and Emerging Markets are expected to continue their run of outperformance.

“Despite an improving picture, the managers are divided on whether they will increase their gearing . The credit crunch is still having an impact with two thirds of managers stating that cost effective financing from banks was not readily available and therefore managers believed more investment companies would issue zeros to obtain cost effective gearing.

“Whilst it’s interesting to gauge the views of investment professionals, markets are impossible to predict and one year’s best performing region can sometimes become the following year’s worst performer.  So it’s important to take a long-term view, ensure you have a balanced portfolio and not to get carried away by the latest ‘hot’ sector.”

Fund Manager Comments
Katherine Garrett-Cox, Chief Executive of Alliance Trust PLC said: “Global equities remain our preferred asset class for 2010 and beyond.  However, we do think that certain credit markets remain relatively attractive from a yield perspective. The reversal of quantitative easing remains a concern, and until we are certain of the implications for this, we reserve judgment on the outlook for inflation and what impact it might have on markets.

“We are less focused on countries, and more interested in stocks; choosing to invest in companies with good franchises, good growth and strong partners. Overall we remain underweight on financials, although we are beginning to re-enter the sector on a selective basis.  We remain sceptical about consumer stocks, and believe the consumer will remain subdued for some time.  We believe Europe has attractions because of the relatively cheap valuations and yields and that Asia (excluding Japan) and Emerging Markets are a long-term growth story.

On balance we remain cautiously optimistic and are prepared to back policymakers to make prudent decisions.  We will continue to seek out long-term opportunities in quality companies with strong balance sheets, good cash flow and high quality management.”

Bruce Stout, Manager of Murray International Trust PLC said: “In terms of economics for 2010, we’ve had a period where we were close to the edge in terms of financial meltdown.  We’ve come back from the edge and markets have celebrated that.  Next year there will be more focus on how we’re going to pay for that because huge deficits have been run up.  Governments and individuals will have to start to pay down their debt, so the main economic scene will be a return to saving and a contraction in overall debt.  For those countries that have plenty of savings such as Asia and Latin America we continue to see good growth next year and that will be reflected in company earnings and dividends.

“As regards equity markets, there can be no doubt that a lot of the relief rally that has happened this year, means that it will be more difficult for markets such as the US and the UK to make progress next year.  But again in the emerging world, valuations are not stretched and companies have genuine
tangible earnings and dividend growth. So we still think from a bottom up point of view there will be opportunities to add value and there will be opportunities to make positive returns from a diversified global equity portfolio.”

Tom Walker, Manager of Martin Currie Portfolio Investment Trust said: “Global equity markets are neither expensive nor cheap. But many companies offer attractive returns, either through earnings growth or dividends or some combination of the two.  This attraction relies heavily on record low interest rates; I believe the anaemic economic recovery will keep interest rates low through 2010. Beyond that, however, there is no question that the risk of interest rate rises is on the up!”

Dr Slim Feriani, CEO of Advance Emerging Capital and manager of Advance Developing Markets said: “The performance of emerging market equities has handsomely outpaced that of developing markets in the past five years and we expect that outperformance to continue over the next five years.  Emerging countries have emerged as the “relative winners” from the subprime crisis and resulting recession for two prime reasons: the quality of their sovereign and household balance sheets has never looked so strong compared with developed countries as it does currently; and their economic and corporate earnings growth is and will continue to easily outstrip that of the developed world in both real and nominal terms for the foreseeable future.

“There seems to be a growing number of investors who agree with me on the outlook for Emerging Markets as judged by the record $60billion of inflows into emerging equities over the year to date as well as such anecdotal evidence as renowned investor Anthony Bolton coming out of retirement, moving to Hong Kong and focusing on China and Asia.  Yet most retail and institutional investors have little exposure to this asset class and it is estimated that global mutual funds have roughly 8% in Emerging Markets versus a global benchmark weighting of just over 12%.”
- Ends-

Note to Editors
The Association of Investment Companies was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies and VCTs.  The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help Members add value for shareholders over the longer term. The AIC has 350 members and the industry has total assets of approximately £82.1 billion.

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