‘Steady as she goes’ for fund managers in 2004

Fund managers remain cautious in their outlook for investment markets this year despite rising levels of confidence stemming from the turnaround in equity market performance in 2003.

More than half of the Australian fund managers surveyed in theMercer Investment Consulting2004 Global Fearless Forecast believe domestic and international equities will continue to exhibit the same or greater levels of volatility - with 25 per of respondents predicting a rise in volatility levels.

The common finding from the survey, which involved the participation of 250 investment managers globally, was an overall tendency towards ‘steady’ performance, according to Mercer practice leader Christopher Andrews.

Local managers believe 2004 will see the materials, energy, industrials, consumer staples and healthcare sectors perform strongly and predicting the worst sectors will be utilities, telecommunications and information technology.

According to Andrews last year’s concerns over regional wars and terrorism have diminished as the main issues affecting markets among both Australian and global investment managers.

“For 2004, local fund managers see the global economy, international trade, oil prices and interest rates as the top issues that will impact on domestic markets.

“The majority of Australian investment managers on average in our survey see a steady road ahead for global and local equities in 2004. Local fund managers expect Australian equities to deliver returns of 8.7 per cent, global equities to record 10.4 per cent and global emerging markets to hit 17.4 per cent,” Andrews says.

With regard to asset allocation levels, in general, respondents will move to take overweight position in Australian and overseas shares this year while moving to underweight positions for listed property, fixed income assets, private equity and hedge funds.

Mercer’s survey also includes forecasts from 35 global investment managers, which when combined, manage in excess of US$7.3 trillion in assets.

Like their Australian counterparts, the global managers are positive yet conservative in their estimates for investment performance in 2004 with managers expecting an average return of 8 per cent for the MSCI World Index and 12.5 per cent for the MSCI Emerging Markets Index.

Managers also tip the Japanese equities market to perform.