International surge lets growth get one over value

IN A complete reversal of prevailing investment trends, international shares are on the rebound and growth managers have come back against value managers, according to the latest InTech Growth Funds Performance Survey.

Detailing results to the end of October, the survey shows that international shares bounced back from the lows they experienced in September, with markets in Europe, the UK and the US experiencing gains of between eight and 11 per cent.

InTech Financial Services, which conducted the survey, has tentatively claimed the figures give hope of a recovery in returns for the 2002/03 period.

“While there is evidence of a rebound for international shares, it is not clear whether the rally will prove to be sustainable,” InTech Financial Services portfolio manager Chris Thompson says.

He suggests the figures give more of an indication about the volatility of the present market, where “overnight movements should not be a surprise”.

Lindsay Gibson, head of balanced funds atCredit Suisse Asset Management, has gone further to suggest that the indicators are in place for an international market turnaround.

He believes that with US interest rates at 40-year lows and more aggressive fiscal policies in the US, the foundations are in place for markets to turn upward.

The survey claims that growth managers have outdone value managers over the October period, reversing the trend that has been apparent since March 2000.

“October saw a reversal in investment trends, in both style and market cap indices,” Thompson says.

“What we saw was contrary to the pattern over the last 12 months, with the Macquarie Growth Index outperforming the Macquarie Value Index and the 50 Leaders Index out-performing mid and small caps,” he says.

The top performing managers identified by InTech for October wereBarclays Global Investorsat 4.5 per cent, followed by Merrill Lynch at 3.5 per cent and Invesco at three per cent.

InTech claims the listing of well-known value managers such asMaple-Brown AbbottandTyndallwell down the performance league table reflected the changed investment environment.

Thompson says the figures over the October period showsome evidence of equalisation between value and growth managers, though he believes it is too early to predict a trend.

“It reflects that the value managers, which have less offshore exposure, have done more poorly,” Thompson says.

From traditional growth manager Credit Suisse, Gibson says that international exposure was the key to growth mangers’ strength during the period, and that growth managers could be at the beginning of an upward trend at the expense of value managers.

“The cycle is due to change, with growth stocks severely hit and possibly oversold,” he says.

“People are covering short-term positionings in anticipation that we might get back to sound international fundamentals,” Gibson says.

InTech attributes the rise in the US market to a good round of earnings reports, which allowed investors to shrug off further negative economic data and look forward to the prospect of the US Federal Reserve lowering interest rates in early November.

Gibson agrees that a possible interest rate cut had a big psychological effect, though he believes the Iraq situation could constrain international share and growth manager performance in the near future.

“It all depends on the international situation. You will need to see that situation settle down for these markets to have sustainable rises.”

Thompson says it is more important for managers to stick to their long-term plans and strategic asset allocation.

The InTech survey found that the Australian share market did not experience as big a rise over the October period, while Australian bond markets ended a volatile month flat.

Despite a median growth fund return of 2.2 per cent for October in Australia, the median fund is still down 3.2 per cent for the first four months of the 2002/03 financial year.

The exception in positive international share performance was the Japanese market, which fell six per cent as a result of concerns over deflation.