In fact, the 58 investment managers that replied to a new survey by Mercer Investment Consulting project that the S&P 500 will gain 9.3% this year.   On the other hand, a comparable survey projected a 10.0% return for the gauge last year, but the S&P 500 actually lost 22.1%.  

Technology should shine in 2003, according to the 2003 US Fearless Forecast, and was cited 18 times in the top three sectors.   Health care was second most-cited in the top three sectors (17 times), while finance was third, cited 16 times as expected, to be among the top 3 sectors.  

On the other hand, finance was also cited 9 times as likely to be in the bottom three sectors, and technology was accorded that evaluation 6 times.   Only once was health care cited as likely to be in the bottom tier.   Utilities looks like a good place to avoid, since it was cited as expected to be in the bottom three sectors 15 times.  

Expectations for the US bond market are somewhat lower than a year ago, with the Lehman Aggregate Bond Index expected to gain just 3.0%, compared with a 10.2% gain in 2002.   As for international markets, the predicted return for the MSCI EAFE Index is 10.4%, again well ahead of the actual return of -17.5% for 2002.

Search Maze?

Managers in the survey expected the vast majority (78%) of equity searches in 2003 to be focused on domestic offerings, with 16% global and 6% EAFE.   More than two-thirds (70%) of alternative investment searches were expected to involve hedge funds, while 20% should involve real estate and 10% private equity, according to Mercer.   Over half (57%) expect alternative investment allocations in the US to increase this year, while 29% expect them to remain unchanged.

Three-quarters don’t expect socially responsible mandates to increase this year.

Capital Hills

In terms of the issues that will drive the US capital markets in 2003, most often cited were the US economy (33%) and geopolitical stability (24%).

Despite current world tensions, two-thirds of respondents expect global volatility to be less in 2003, while 20% expect it will stay the same – and just 13% expect it to increase.   As for the most attractive equity markets this year, Hong Kong/China topped the respondents’ list, followed by:

• US
• South Korea
• Japan
• UK

Concerns about the global economy dominated managers’ evaluations of the top issues affecting global capital markets in 2003, cited by 42% of the total.   Terrorism, which drew 19% of the responses, was second; interest rates, oil prices, and inflation tied for third, with 8% each.

As for global benchmarks, two-thirds used the MSCI World Index, while 3% used the FTSE World Index, and 25% used both.   Sector/industry allocations were deemed more important in 2003 by 80% of the respondents, while just 20% were focused on country/region.

Investment managers expect the economy, as measured by GDP, to grow at 3.0% in 2003, with inflation expected to stay in the 2.2% range. The managers surveyed also expect US unemployment to drop slightly to 5.7% by the end of 2003.

Respondents to the Mercer survey included small boutique firms and large multinationals.   Together they manage in excess of $3.6 trillion in US assets and $5.7 trillion in global assets.