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Confidence in equity prospects

Equities received a resounding vote of confidence from the Adviser Fund Index panellists in the third AFI mid-season questionnaire.

Despite increased stockmarket volatility during the survey period in July, all 15 respondents say they expect equities to outperform other main asset classes over the next 12 months.

As in the February questionnaire, bonds were the least-favoured class, with seven out of 15 predicting the lowest returns. Cash replaced commercial property as the asset most likely to produce the second-best returns, according to eight respondents.

In the equity markets, panellists are positive on Europe excluding the UK. Seven out of 16 expect the region to produce the strongest returns over the next 12 months but eight predict that Asia Pacific will produce the best performance over the next five years.

Emerging markets are the second most popular choice over the longer timeframe, with five votes, followed by Japan on two. The panellists are more wary of emerging market equities over the short term, with nine expecting underperformance over the next year. Five respondents are bearish on North America over the same period.

Large-cap shares were picked as the best performers over the next 12 months by 15 panellists. The survey also revealed a high degree of confidence in growth investing, with just two respondents predicting that value fund management styles would produce the greatest returns.

On fixed interest, panellists expect investment-grade corporate bonds to perform best over the next year, followed by high yield and Government securities but five also predict high-yield bonds to generate the lowest returns.

Away from the traditional asset classes, the panellists displayed largely neutral views on hedge funds and private equity. Three say commodities are a very important element in their clients’ portfolios.130/30 funds and funds of hedge funds, which are likely to become more widely available next year, received a lukewarm response. Just five rated them as likely to be essential or very important to their clients in three years time while four say exchange-traded funds will be important.

The panellists were asked to rate the importance of nine factors they consider when selecting funds. A clear majority say past performance, fund manager style and asset allocation are essential or very important. Commission is considered unimportant by 11 panellists.

AFI panellist groups Gerrard Investment Management, Bestinvest, Chartwell Investment Management, Thinc Wealth Management, Whitechurch Securities, Dennehy Weller, AWD Chase de Vere, Beckett Asset Management, Origen, Rowan & Co Capital Management, Killik, Bates Investment Services, City Asset Management, Bentley Jennison Financial Management, Charles Stanley and Chelsea Financial Services took part in the survey.

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