Fund Managers Chasing the Bulls in 2011

March 1, 2011 ( – Fund managers are bullish about the prospects for public equities and emerging markets in 2011, but have bearish views of nominal government bonds.

That was a key conclusion of a new Towers Watson survey of investment managers. Low central bank rates and mild inflation will continue to stimulate economic growth, helping to avoid a double dip recession and feed the global recovery, the managers believe. They highlight unemployment as a major challenge for some developed economies, but see it improving during the year.

The global survey highlights two main risks to avoid, namely the likelihood of sovereign debt default in the Euro zone and continuing economic stagnation in Japan, according to a Towers Watson news release. In addition, there is a consensus on the continuing West/East divide theme, with managers expecting increasing competitiveness from emerging economies and persistent boom conditions in China, while most Western economies have a slow economic recovery, the announcement said.

The research also found that managers expect equity returns over the next ten years to be lower than the historical average, while their predictions about returns in 2011 vary widely by market, although they agree there will be more volatility than in 2010.

According to managers, anticipated returns on global equities in 2011 will be 10%, the same as in 2010, with other equity markets expecting to deliver 10.0% (9.0% in 2010) in the U.S.; 10.0% (8.5%) in the U.K.; 7.0% (9.0%) in the Euro zone; 10.0% (9.0%) in Australia; 6.0% (9.0%) in Japan; and 10.5% (14.5%) in China. Expected equity volatility for 2011 is in the 17% to 22% range, somewhat higher than longer term averages.

Turning to bonds, there is a wide dispersion of views, which indicates significant uncertainty about the level and direction of yields on both short- and long-term corporate and government securities. However most managers (76%) hold overall bullish on emerging market debt, while most (79%) have bearish views on the prospects for nominal government bonds. Most managers hold neutral views on the prospects for inflation-linked government bonds (48%) and on high-yield bonds (41%). 

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