FE Adviser Fund Index

Following a year marked by economic turmoil and growing concerns about the eurozone debt crisis, the first few weeks of 2012 seem uneventful in comparison but there is little to suggest a more positive outlook.

The fact that little has changed since the start of the year makes the results of January’s Merrill Lynch Fund Manager Survey, which notes a marked increase in confidence, all the more surprising.

The survey’s headline figure, which says that only a net 3 per cent of respondents think the world economy will weaken in the coming 12 months, was particularly curious. The same question was asked in December and, at that time, 27 per cent of respondents thought the economy was likely to weaken through 2012.

This increase in confidence could suggest a fundamental shift in expectations but it is perhaps a case of investors wanting to be positive, according to FE Adviser Fund Index panellists.

Rowan Dartington head of collectives research Tim Cockerill says investors could simply be fed up with the constant negative outlooks.

He says: “I think the survey displays how quickly sentiment changes. The December thinking followed compounded bad news. But actually, people long for reasons to be bullish. There is maybe a sense that the worst news was exaggerated.”

The survey’s other points are equally surprising. In particular, it suggests managers might be increasing risk in their portfolios. Cash levels have fallen to an average of 4.4 per cent of respondent’s portfolios, down from 4.9 per cent in December.

There is also an indication that managers are more bullish on the health of corporates. While 21 per cent of respondents say that they expect worldwide profits to fall in 2012, this is a marked fall from the 44 per cent who said the same thing in December.

The proportion of the panel expecting corporate earnings growth to be under 10 per cent also fell to a net 42 per cent, down from a net 60 per cent in December.

Cockerill says: “I think I would take these short-term results with a pinch of salt. But it does reflect improvements. The cash level struck me as particularly low. That was an interesting statistic.”

Other FE AFI panellists are similarly surprised. AFH Independent Financial Services head of research Graham Toone says: “This is quite a surprise. We are still cautious. When they release the next GDP figures, I would not be surprised if they are negative.

“I think the best that we can hope for is that news does not get any worse. It is a bit of a muddle-through scenario. We think this year is going to be a hard grind.”.

Data provided by FE