The Association of Investment Companies (AIC) has published the results of their seventh poll of investment company fund managers.
The results show that the majority (58%) of managers expect FTSE to end the year between 5500 to 6000, and fund managers tip Emerging Markets as the top performing regions in 2010.
Over one quarter of fund managers (28%) think that gold will be the best performing asset, and tip resources as the top performing sector. Click here for a guide to natural resources funds.
Fund Managers Optimistic about 2010
Fund managers were generally optimistic about market prospects with nearly three quarters of fund managers (74%) predicting that markets will rise in 2010. Half of managers polled thought equities would be the best performing asset class, but interestingly over a quarter thought gold would perform best.
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 or decrease their gearing in the next six months, although this is likely to be influenced by the ability to acquire cost effective financing from banks. Nearly two thirds polled did not think financing was more readily and cost effectively available.
Which will perform best in 2010?
Equities - 50% Click here for a guide to equities.
Gold - 28%
Bonds - 0%
Residential Property - 0%
Commercial Property - 5%
Cash - 5%
None will do well - 0%
All will do well - 5%
Don't know - 9%
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%).
Which sectors do you expect to perform the best in 2010?
Blue Chips - 16%
Technology - 12%
Manufacturing - 4%
Smaller Companies - 8%
Utilities - 12%
Resources (including oil) - 24%
Media - 4%
Financials - 12%
Commercial Property - 0%
Private Equity - 0%
Hedge Funds
Alternative Energy
Ethical Funds - 0%
Biotechnology
/Pharmaceuticals - 0%
Other - 0%
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Which geographic regions will produce the best stock market returns in 2010?
Far East Ex Japan - 18%
Far East Inc Japan - 0%
Japan - 4%
Emerging Markets - 35% Click here for a free emerging markets brochure
UK - 0%
US - 4%
Europe - 4%
Latin America - 22%
Middle East/ north Africa - 13
Other - 0%
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%."
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