Equities cling on to popularity

Equities remain the asset class of choice for the world’s multi-managers, in the wake of their recent tumble, but they are at their least popular since April 2003. The latest World Multimanagement Indicator, from French house Natexis Asset Square, surveyed some 184 fund managers at leading European and US firms, with an average of ?37bn under management. This revealed an ideal equity allocation of 57 per cent for high risk clients and 43 per cent for medium risk(see charts 1 and 2). These allocations have slipped eight and seven points, respectively, over the past quarter and are the lowest since the survey started in April 2003. Then, equities represented 58 per cent of an ideal high risk portfolio and 43 per cent of a medium risk one. Emerging markets, a darling of investors at the end of last year and the start of this one, have plummeted in popularity. Only 44 per cent of respondents were optimistic about emerging countries in the latest survey, compared with 71 per cent in March 2006 and 74 per cent in December 2005. Self-proclaimed buyers in emerging markets account for only 29 per cent of respondents, down from 53 per cent in March, while sellers are up to 22 per cent. Optimism has also slumped regarding the US, from 51 per cent of respondents in December, to only 22 per cent now. There is greatest confidence in Japan, about which 68 per cent of respondents are optimistic, but even this has seen a significant slump from the high of 85 per cent optimism in December 2005. Europe is the only market in which confidence has grown since the turn of the year (from 45 to 54 per cent of respondents), and even there it has slipped slightly over the second quarter (from 55 per cent in March). Energy, health, finance and industry are the most popular sectors, according to the managers surveyed, but the biggest shift is in the popularity of telecoms. This had slumped since September last year, reaching a low of only 27 per cent of respondents favouring it in March. Now, the sector is back at June last year’s level of 48 per cent. On the interest rate front, views are increasingly bullish on Europe, less so on the US. Only 44 per cent of respondents predicted a rise in long-term US rates. Although the picture is more positive on short-term rates, with 63 per cent of respondents predicting a rise, this is down from 85 per cent at the turn of the year. Four out of five respondents expect short-term interest rates in Europe to go up, and 63 per cent think that long-term rates will rise. Wealth managers have also become more bullish on the prospects for the euro. Nearly one in six respondents (59 per cent) expect it to appreciate against the dollar, while only 15 per cent see it depreciating. Against the yen, stability is the predominant prediction (47 per cent of respondents) but predictions of a depreciation have dropped from their 33 per cent high in March.