December 17, 2009 12:52 pm

Fund managers predict growth in 2010

Fund managers are increasingly optimistic about 2010 with a new poll by the Association of Investment Companies (AIC) revealing that nearly three quarters of managers predict stock markets will rise.

A further half believe that equities will perform the best, followed by gold and commodities.

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Fund managers are also bullish on the FTSE 100, with more than a half predicting it to close somewhere in between 5,500 and 6,000 by the end of this year.

The figures highlight a renewed sense of optimism among UK fund managers, who at the beginning of the year were sceptical of a fast recovery. The greatest cause for optimism fund managers say, are prospects for global growth, low interest rates and higher earnings and dividends.

Many fund managers are now moving away from bonds, which they believe will underperform stock markets in the next decade. They see greater opportunities arising mostly in equities, with natural resources (including oil), blue chip, financial and technology stocks among the favourites to outperform.

“Bond markets outperformed equities in the past 30 years, but I do not foresee this to continue into the next decade,” said James Anderson, manager of Scottish Mortgage Investment Trust.

There also appears to be a shift towards value investing as well, with many fund managers opting for companies with strong fundamentals such as good cash flow and a unique competitive edge.

”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 in financials, although we are beginning to re-enter the sector on a selective basis,” said Katherine Garrett-Cox, chief executive of Alliance Trust.

However, over a third of fund managers still chose emerging markets as the region most likely to produce the best stock market returns next year. Over the past year, Brazil, China, India and Turkey have produced significant gains while developed markets struggle to recover. But they are also regarded as highly liquid markets that present fund managers with greater opportunities to outperform.

Bruce Stout, manager of Murray International Trust said: “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.”

However, over a quarter of fund managers surveyed say that low growth posed the biggest threat to markets over the next year, while a fifth of managers expressed concern over the possibility of a prolonged recession.

Last year, the biggest concern among fund managers was the recession, followed by a lack of liquidity.

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