IFAs and fund managers generally optimistic about markets’ prospects

The Association of Investment Companies (AIC) and Unbiased.co.uk have published the results of their fifth joint annual poll of investment company fund managers and IFAs, gauging their views for the year ahead. Unbiased.co.uk received responses from over 250 of its member IFAs, whilst the AIC spoke to fund managers representing £17bn of assets – just over a fifth of the AIC’s Membership by assets.

Both camps are generally optimistic about the prospects for 2008, however in keeping with last year, fund managers were the more cautious group. Some 77% of IFAs expect markets in general to rise next year compared to 61% of fund managers, with the more bearish fund managers expecting a bumpy ride for equities next year. Blue chips were tipped as the sector most likely to outperform in 2008 by the largest proportion of fund managers with IFAs, in contrast opting for Resources. IFAs have tipped Emerging Markets as the best performing region in 2008 and fund managers favoured the Asia Pacific region excluding Japan.

FTSE Prospects

Whilst IFAs and investment company fund managers had different views on which sectors and countries were likely to perform best in 2008, their views on the prospects for the FTSE 100 were very much aligned, with 44% of fund managers and 45% of IFAs expecting the market to close next year at between 6500-7000 points. A bullish 14% of IFAs and 17% of fund managers expect the FTSE 100 to climb between 7000-7500 points, although there were plenty of bears too – 11% of fund managers and 8% of IFAs think the FTSE will end 2008 at 5500-6000 points.

Credit crunch

Whilst both fund managers and IFAs agree that the credit crunch will continue into 2008 (94% of fund managers and 89% of IFAs), it was the second most commonly cited worry for fund managers, who were more likely to worry about lower GDP growth (33%) than the credit crunch (29%). Meanwhile the credit crunch was the most commonly cited worry for 46% of IFAs, followed by lack of consumer spending (19%). When fund managers were asked what gave them the greatest cause for optimism in 2008, attractive valuations was the most commonly cited factor (23%), followed by falling interest rates and better than expected global growth, especially in Asia (both 18%).

Oil versus blue chips

Last year, IFAs were most likely to tip smaller companies to outperform whilst fund managers tended to favour blue chips. This year, IFAs tended to tip Resources (including oil) as the sector most likely to outperform in 2008 (21%), followed by Blue Chips (15%) and alternative energy and utilities (both 11%). Meanwhile, fund managers tended to favour blue chips for a second year running (29%), followed by Resources (including oil) (13%), and bravely, Financials (13%).

Globetrotting

The most commonly cited region to outperform amongst fund managers in 2008 was the Asia Pacific excluding Japan (27%), followed, in equal measure, by Japan, the UK, and perhaps surprisingly, the US (all 14%). IFAs favoured Emerging Markets (35%), the Asia Pacific Excluding Japan region (18%) and Europe (17%).

Changing gear?

Fund managers were divided about what they plan to do with their gearing levels in the coming months, with some 44% taking a ‘wait and see’ approach. Over a fifth (22%) said they had no plans to change gearing levels, whilst a bullish 17% plan to actively increase gearing. A further 11% plan to decrease gearing, and 6% plan to offset some of their current gearing by increasing their cash/fixed interest positions.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “After a challenging year for equities, it is encouraging to see that optimism is generally prevailing for 2008 amongst IFAs and fund managers, although investors may well want to prepare for a bumpy ride along the way. There are some interesting differences of opinion with fund managers tipping blue chips as the top sector for 2008 whereas IFAs favour resources. IFAs and fund managers both favour regions in 2008 which have performed well this year, with IFAs opting for Emerging Markets and fund managers choosing the Asia Pacific.

“In the very volatile markets which we’ve seen recently regular investing can be a sensible tool as it helps smooth out some of those highs and lows in the price of shares. Known as pound cost averaging, it means investors buy fewer shares when prices are high, and more when prices are low, removing some of the worry of market timing.

“Nevertheless, there are a number of investment company fund managers who are finding many opportunities amidst the current backdrop, with some taking the view that the pessimism has been overdone. Whilst it’s interesting to gauge the views of investment professionals, markets are impossible to predict and one year’s best performing sector can sometimes become the following year’s worst performer. So it’s important to take a long-term view, ensure you have a balanced portfolio and not to get carried away by the latest ‘hot’ sector.”

David Elms, Chief Executive, Unbiased.co.uk, said: “It is great to see that IFAs and fund managers still remain positive about the market outlook for 2008, despite the recent stockmarket movements. However, regardless of market fluctuations, consumers should ensure that they have their portfolio reviewed by an independent financial adviser on a regular basis to make sure their investment goals are being met.”