Fund managers warn of bumpy ride
1 August 2007
The top managers in the managed funds industry are well placed to advise on market trends. We gathered the opinions of the industry's major players to find out how the next 12 months could affect you.
Share markets - there's more volatility but the top is still a way off
AMP's Head of Investment Strategy and Chief Economist, Dr. Shane Oliver believes there is still opportunity to be found in the share market.
"Over the next 12 months, shares are likely to return somewhere between 15-20 per cent on the back of still reasonable valuations, solid profit growth and a strong flow of funds into shares."
He also feels that market unpredictability may not be such a bad thing as volatility helps prevent investors from getting too euphoric and also provides opportunities for those with cool heads.
Schroders' Head of Australian Fixed Income and Multi-Asset Funds, Simon Doyle agrees that investors should plan for lower returns and higher volatility. He says, "Prudent investors should be winding back their exposure (i.e. banking their profits) and looking for returns on a broadly diversified portfolio to stabilise around 8-10 per cent p.a."
He adds that, "There are a lot of investments that look particularly vulnerable right now. Lower quality credit, a number of structured credit instruments (CDOs) and listed property trusts are amongst the assets that worry us most."
Global equities - some bumps in the road but still optimistic
Reserve Bank Governor Glenn Stevens remains "reasonably optimistic about China's long run growth potential, and of those parts of Australia's economy that are complementary to China's growth needs."
However, he also warns that this high level should not be seen as the norm.
It is more likely, he says, that there will be occasional bumps along the road, and some of them could be pretty big.
Dr. Oliver agrees that whilst it's not all plain sailing, the outlook is reasonable. He says, "Sub prime mortgage problems are likely to remain a constraint on US growth and China will continue to introduce measures to try and cool their economy, which will remain very strong." But he also forewarns of more shocks for the local market, with a possible correction 'due sometime before the year-end'.
Beware an increase in competition may effect value
A recent PricewaterhouseCoopers survey of Investment Management CEOs shows the rise of industry super funds and the amount of new entrants to the market as two of the top issues of concern.
Simon Doyle says investors need to brace themselves for greater volatility and some 'nasty' surprises as excess liquidity drives a divide between price and value. In other words, be careful about paying too much.
That also applies to investors who have invested in "defensive" assets that have generated solid returns but now carry considerable risks, something that they may not appreciate, he says.
Meet the experts
 | Simon Doyle
Head of Australian Fixed Income & Multi-Asset Funds
Schroders |  | Dr Shane Oliver
Head of Investment Strategy & Chief Economist
AMP Capital Investors |
As Head of Australian Fixed Income and Multi-Asset Funds, Simon Doyle is responsible for the management and investment performance of Schroders Australian Balanced Fund, Fixed Income Fund and Hybrid Securities Fund. Simon is a member of Schroders' Global Asset Allocation Committee and chair of the Australian Fixed Income Strategy Group. |
Dr Shane Oliver joined AMP in 1984 as a research officer and in 1994 became AMP's Chief Economist. He now plays a major role in determining AMP Capital Investors investment strategy and asset allocation. He also provides economic forecasts and analysis to the asset class portfolio managers. As Chief Economist, he maintains a media profile for AMP Capital Investors on economic and investment market issues. |
Important note: Before making any financial or strategic decision you should obtain professional advice which takes into account your personal circumstances and objectives. This article is not professional advice and does not take into account your personal circumstances or objectives.
The views and opinions expressed in this article do not necessarily represent the views and opinions of Rabobank Australia Limited.
