AIC/IFAP annual joint poll- fund manager and IFA 2007 predictions
- IFAs and Fund Managers optimistic about the FTSE’s prospects in 2007
The Association of Investment Companies (AIC) and IFA Promotion today published the results of their third joint annual poll of investment company fund managers and IFAs, to gauge their views for the year ahead. IFA Promotion received responses from 170 of its member IFAs, whilst the AIC spoke to fund managers from 31 Member investment companies representing 17bn of assets a fifth of the industry. This year’s poll found both groups were optimistic about the prospects for markets in 2007, although there were some interesting contrasts between the two camps.
Blue chips were tipped as the sector most likely to outperform in 2007 by the largest proportion of fund managers, with IFAs, in contrast, opting for smaller companies. Fund managers also expressed confidence that equities are much more attractive than property and bonds (something that IFAs have yet to be persuaded on). IFAs tipped Emerging Markets as the best performing region in 2007 whereas fund managers favoured Japan. The greatest causes for optimism amongst both groups were corporate profitability, balance sheet strength, M&A activity, opportunities in the Far East, and a belief that inflation is under control. See page 4 for fund manager quotes.
Property
Whilst 77% of fund managers expect equities to outperform property and bonds next year, only 55% of IFAs agree. Instead, some 28% of IFAs expect property to outperform, a view which no fund manager shared. In fact, 12% of IFAs expect property to be the top performing sector overall next year, possibly on the back of the introduction of REITs in January. No investment company fund managers thought property would be the top sector in 2007.
Market outlook for 2007
Whilst there were some notable differences between the views of IFAs and Fund Managers, there were more similarities than there have been in the past. Some 78% of IFAs and some 74% of fund managers expect markets in general to rise in 2007, and whilst for fund managers this was in line with last year, for IFAs this represents a fall last year some 92% of IFAs expected markets to rise.
FTSE Predictions in 2007
There was also much more convergence between the two groups this year when it came to their FTSE 100 predictions most IFAs (42%) and fund managers (43%) expect the FTSE 100 to close next year between 6,500-7,000, with 7% of both IFAs and fund managers confidently expecting the market to climb over 7,000 in 2007. But there were more bears in the fund manager camp 13% expect the FTSE to close next year between 5500-6000, compared to just 5% of IFAs, whilst an ultra-bearish 3% of fund managers and 1% of IFAs expect the FTSE to plummet below 3,000.
Where do you think the market will close at the end of 2007?
| <3000 | 3000-3500 | 4500-5000 | 5000-5500 | 5500-6000 | 6000-6500 | 6500-7000 | 7000-7500 | 7500+ |
Fund Managers | 3% | 0% | 0% | 7% | 13% | 27% | 43% | 7% | 0% |
IFAs | 1% | 1% | 2% | 1% | 5% | 39% | 42% | 7% | 2% |
Some 18% of the fund managers polled said they plan to increase their gearing (borrowing) levels next year, although 11% plan to decrease their borrowing; 28% will wait and see and 43% plan to make no change.
Where in the world?
Both fund managers and IFAs had contrasting views on the top performing region for 2007 although both groups tipped Europe and the Asia Pacific (ex Japan) to perform well in 2007. Emerging Markets was the most favoured region for IFAs (23%), compared to just 12% of fund managers. Whilst 2006 was not a particularly strong year for Japan, fund managers have kept the faith and this region received the most fund manager votes, with some 23% of fund managers expecting Japan to be the top performing market next year but only 6% of IFAs agreed. Europe and the Asia Pacific (ex Japan) were favoured sectors for both IFAs and fund managers.
Which geographic sectors do you expect to perform the best in 2007?
| Asia Pacific Ex Japan | Asia Pacific Inc Japan | Japan | Emerging Markets | UK | US | Europe | Latin AM | Other |
Fund Managers | 16% | 2% | 23% | 12% | 7% | 14% | 16% | 10% | 0% |
IFAs | 14% | 6% | 6% | 23% | 14% | 7% | 17% | 9% | 4% |
Sectors
Whilst last year financials were favoured by the greatest proportion of fund managers as the sector to outperform in 2006, this year blue chips were a firm favourite with fund managers (23% compared to 13% of IFAs). Having said that, financials still came in joint second place with resources (16%) for fund managers. IFAs also favoured the financials sector, which came joint first with smaller companies (14%), whilst resources and blue chips were also popular with IFAs, with each gaining 13% of IFAs votes.
Which sectors do you think will outperform in 2007?
| Blue Chips | Tech | Manufac turing | Smaller Co's | Util’s | Resou | Media | Finan | Prop | Private | Hedge | Alt |
Fund Managers | 23% | 9% | 4% | 9% | 2% | 16% | 9% | 16% | 0% | 4% | 6% | 2% |
IFAs | 13% | 6% | 1% | 14% | 10% | 13% | 1% | 14% | 12% | 3% | 2% | 11% |
Potential Threats
Whilst IFAs and fund managers were generally upbeat about the prospects for 2007, when asked about the threats to equities, rising interest rates were high on the agenda for both groups. For IFAs, the greatest risk to markets next year is the threat of/acts of terrorism (23%), followed by rising interest rates (22%). Fund managers also felt rising interest rates could be a threat (27%), followed by low GDP growth (16%).
What is the single biggest threat to equities?
| Rising oil prices | Valuations getting expensive | Lack of consumer spending | Low GDP Growth | High Inflation | Threats of/acts of terrorism | Rising interest rates | Other |
Fund Managers | 8% | 11% | 11% | 16% | 11% | 13% | 27% | 3% |
IFAs | 10% | 6% | 18% | 6% | 6% | 23% | 22% | 9% |
Annabel Brodie-Smith, Communications Director, Association of Investment Companies said: “It’s encouraging that both investment company managers and IFAs expect markets in general to rise next year, and the majority believe the FTSE will end the year in positive territory. But there are some interesting differences of opinion with fund managers tipping Japan as the top performing region in 2007 whereas IFAs favour Emerging Markets. Fund manager sentiment towards blue chip companies has increased this year, a decision which reflects managers’ concerns about the threat of rising interest rates. Whereas IFAs favour the strongly performing financials and smaller companies.
“It’s interesting to gauge professional investors’ views, but markets do not behave in a predictable way. It’s important to have a balanced portfolio, take a long-term view and not to get carried away by the latest ‘hot’ sector. By investing in a range of companies and sectors, investment companies can spread your investment risk. With strong long-term performance, on average low charges and the freedom to invest either monthly or by lump sum, they are a flexible way to tap into the long-term benefits of the stock market.”
David Elms, Chief Executive, IFA Promotion, said: “Amongst both IFAs and Fund Managers, optimism is high as we go into 2007. Although there is some disparity between the groups as to where the opportunities and threats will come from, with changing interest rates and an increasing reliance on property, across the board it is likely to be a busy year for investment professionals. As individual investors’ needs are all different, for example some consumers may specifically be looking for advice on ethical investment, it is important that they seek independent financial advice before deciding where their hard earned cash should be invested.”
Fund manager comments
Grant Lindsay, Head of Equities, Alliance Trust said: “Equities remain reasonable value in themselves and offer good value when compared with other asset classes. Corporate activity, rising dividends and ongoing share buybacks should lend support to markets in 2007, however, overall, the appetite for risk has risen too far. When risk starts being more realistically priced, entry levels for equities will become more attractive but it is not clear when this shift might take place.
“One risk factor is the coming slowdown in the US. We highlighted our concerns earlier in the year but the degree of severity of the slowdown the US is facing will only become clear next year.”
Gervais Williams, Manager, Gartmore Fledgling, Gartmore Growth Opportunities, and Gartmore Irish Growth; said: "Equity returns in the UK have been good again in 2006, although there was an unusually wide dispersion of returns in different areas of the market during the year. It's amazing that the FTSE 250 has risen over 25%, whereas the AIM Index has actually fallen in the year to date. As the bull market matures, we expect the volatility of returns to increase. This will give active fund managers greater opportunity of adding value by taking advantage of the mispricing of individual stocks, most particularly in those quoted on the AIM market."
Bruce Stout, Manager, Murray International Investment Trust, commented: "We are fearful about the levels of consumer debt in the UK and US combined with the latter’s ballooning twin deficits. The US and UK are likely to experience protracted economic downturns within the next five years, accompanied by negative effects on asset quality, corporate profits and dividends. Although opportunities remain in both markets, from a global investment viewpoint we are inclined to favour the Asian, European, Japanese stockmarkets."
Patrick Edwardson, Manager, Scottish American Investment Company; said: “2007 should be another positive year for equities, but we are expecting corporate profits growth to slow. We’d expect high quality growth stocks to outperform in this environment and this is where we are focusing the portfolio.”
Tom Walker, Manager, Martin Currie Portfolio, said: “Easy money has lifted the valuation of many assets, most particularly property. The biggest risk is that something occurs to end the easy money environment high inflation is only one such occurrence. Relative to other assets, equities are attractive. Equity valuations are already discounting a slowdown in earnings and I suspect that companies can continue to surprise positively in 2007.”
Nick Train, Manager, Finsbury Growth & Income; said: “We expect a cyclical and secular upturn in the UK savings ratio, which will benefit UK capital markets and intermediaries serving those markets.”
- Ends -
For further information, please contact:
Annabel Brodie-Smith Jemma Jackson
Communications Director PR Manager AIC AIC
020 7282 5580 020 7282 5583
07798 62 44 49
Francesca Pattison/ Sarah Campbell Laura Wood
Lansons Communications Lansons Communications (for IFAP)
020 7294 3638 / 020 7566 9703 020 7294 3689
Notes 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 300 members and the industry has total assets of approximately 81 billion.
- For expert comment or case studies from over 220 media-friendly IFAs, journalists should call IFA Promotion’s Media Services hotline on 020 7294 3682 or search online in ‘Media Services’ at www.unbiased.co.uk
Independent Financial Adviser Promotion
IFA Promotion, is the organisation established in 1989 to promote the value and accessibility of independent financial advice to the public. It represents around 9,000 firms of independent financial advisers across the UK, incorporating over 17,000 registered individuals. These individuals hold over 20,000 incremental qualifications which are each individually verified by the awarding body. IFA Promotion welcomes the prominent display of incremental qualifications and further developments into the credentials of independent financial advice.
IFA Promotion is sponsored by 31 leading financial institutions, and in the past 12 months, over 600,000 consumers and businesses used unbiased.co.uk to find local independent financial advice.
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