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Wealth manager outlook: eight key fourth quarter calls
by David Campbell on Sep 26, 2013 at 13:53
Our latest quarterly survey shows wealth managers rushed for developed markets as global growth and profit expectations collapsed.
European equity was fully reintegrated as a mainstream asset class in Q3, with the number of managers reporting an overweight rising to 68%, the highest in the 30-month life of the survey.
For the first time in the history of any asset class which we survey on, zero managers reported an underweight, down from 28.6% of managers below benchmark in the previous quarter.
Stanhope Capital CIO Jonathan Bell said: ‘Europe has lagged the rest of the world and although economic growth will still be weak in 2014 investor sentiment will improve.’
For full coverage of the WM Q4 Outlook click here
Similarly, the number of managers willing to risk below-index exposure to UK equity fell to zero over the quarter, as lead indicators began to head upwards dramatically and house prices re-inflated.
With the FTSE 100 at a fuller valuation than euro equity, opinion remained much more divided however, divided 52.6% to 47.4% between overweight and neutral respectively.
‘The UK, Europe and Japan seem to offer long term investors an interesting entry point in terms of valuations,’ said Investment Quorum CIO Peter Lowman.
The number of managers overweight Japan near-doubled quarter on quarter, from 33.3% to 57.9%. The 5.3% of managers underweight has fallen to less than a tenth of the 55.6% 12 months ago, before the announcement of Abenomics.
‘Equities, mainly in Japan, Europe and then emerging markets,’ would offer the richest opportunity over the next 12 months, said Glenn Meyer, head of managed funds at RC Brown.
The quarter also witness an important step in the continued rehabilitation of property, with the number of managers overweight more than doubling over the quarter, albeit still low at 31.6.
That was correlated with EM debt bearishness rising sharply over the period. With developed credit allocations still bumping along in single figures, property is among the last sources of solid yield.
‘My big question is whether the race for income will mean the market moves harder into property, as an alternative to lower risk debt,’ asked Jon Beckett, senior manager of fund assessment at Lloyds.
‘[Equity] yields may look attractive but ultimately unsustainable over the next five years. The question remains, are we ready to put behind our liquidity worries in property?’
Developed equity Conviction-o-Meter
Overall, outside of US equity where overweights were largely unchanged at 52.6% and underweights near tripled to 26.3%, investors aggressively committed to developed equity over the three months.
Wealth Manager’s Conviction-o-Meter for developed equity, showing aggregate exposure across the four main regions, showed overweight exposure rising hard from 38.5% to 57.87%.
‘Developed economies are beginning to react positively to the better-than expected data and therefore look a much safer place to invest than they did a couple of years ago,’ said Lowman.
Nick Hungerford, chief executive of Nutmeg, warned that the call was relative, however. ‘Developed economies will continue to grow and economies expand, but don't expect massive improvements too quick.’
That positivity came with a big corollary, hinted at by Hungerford in the previous point. Expectations of global growth collapsed over the period, with the number of managers expecting it to rise falling from a chunky majority (57.1%) to zero.
The number who expected it to fall rose from 4.8% to 79% while the number expecting it to fall ‘significantly’ rose from zero to 5.3%.
Hawksmoor CIO Richard Scott said his greatest concern over 12 months was ‘global growth rolling over (if rates go up too fast), and the authorities struggling to restore momentum’.
That was mirrored by manager expectations on corporate profits, with a feeling that the cycle had peaked evident from the number expecting profits to fall rising from 4.8% to 68.2% in the quarter.
‘Equity underperformance as prices catch up with economic fundamentals,’ was a serious concern over the next year pointed out David Man, partner at RMG Wealth.
Lloyd’s Beckett broadly agreed with that point. ‘Once again we have to ask ourselves how connected the economy, corporate profits and asset prices really are.
‘A reasonable man might say that markets have already priced the recovery in for some time; corporate profits look unlikely to get much better without significant Cap-Ex.’
Both of those inevitably impacted on manager expectations of investor outlook, with a widespread feeling that the recent quarter would be as good as it got for the foreseeable future.
The number of managers expected sentiment to worsen doubled over the quarter, from 28.6% to 57.9%. The number expecting it to improve fell from 42.9% to 10.5%.
For full coverage of the WM Q4 Outlook click here