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European Fund Trends Survey …
Tags: attitudes, brazil, china, contrast 33, emerging market, emerging markets, fund managers, india, market equity, market valuations, moderate price, perspective, respondents, risk levels, russia, trends survey, valuation levels,Pages: 8
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Created: Tue Mar 6 23:38:25 2007
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European Fund Trends
Survey Theme: Emerging Markets
February 2007 Selected Questions
Whither Emerging Markets?
Summary of results:*
Monthly Theme
Our February 2007 European Fund Trends Survey asked 1. Is the multi-year increase in emerging-market equity prices
managers for their perspective on emerging market valuations and indicative of a 'bubble' environment?
risk levels. We conducted a nearly identical survey in April 2006, Yes...7% No..93%
and the current results show at least one clear change in fund
managers' views on emerging markets.
2. Are current valuation levels in emerging-market equities
The most notable trend is the change in attitudes towards the sustainable?
valuations of Chinese equities. When asked which of Russia, Not at all. We expect significant price declines......................0%
China, India, or Brazil was most overvalued, only 5% of the No. We expect moderate price declines..............................21%
respondents to our 2006 survey selected China, while 35% of the
They are about right.......................................................25%
2006 respondents said that none of the four markets was
overvalued. In contrast, 33% of respondents to the question in the Yes. There is room for moderate price increases..................46%
current survey said China is the most overvalued of the group, Yes. There is room for significant price increases...................7%
and only 10% said that none of the four markets is overvalued.
Overall, India was selected most frequently (by 53% of
respondents) as the most overvalued market, which is in keeping
with responses to the 2006 survey. 3. Which emerging market's equities are the most overvalued?
Brazil..0% Russia..3% India..53% China..33% None ..10%
Respondents voiced the most concern with Russia and Emerging
Europe. When asked whether Brazil, Russia, India or China would
see its GDP growth weaken the most in the next three years, 50% 4. Which of the following countries' GDP growth rates will
of respondents selected Russia. China was a distant second, with increase/weaken the most over the next three years?
23% of respondents stating its GDP growth would weaken the
Increase the Most Weaken the Most
most of the four markets'. When asked whether Emerging Asia,
Brazil 39% 15%
Latin America, or Emerging Europe would deliver the worst equity
Russia 0% 50%
returns over the next three years, 65% chose Emerging Europe.
India 26% 12%
The 2006 survey elicited similar responses, but the percentage of
China 35% 23%
respondents selecting Russia and Emerging Europe in these two
questions increased significantly in 2007 relative to 2006.
5. Which emerging region will deliver the best/worst equity
We also asked a new question about the biggest risk factors by
investment returns over the next three years?
region. Respondents appear to be alarmed by some of the past
year's events in Russia: 60% cited political risk as the biggest risk Best Returns Worst Returns
of the four choices given (an interest rate rise in the U.S., a Emg. Asia 56% 12%
slowdown in China's growth rate, a rise in oil prices, and political Lat. Amer. 41% 23%
factors). For Emerging Europe ex-Russia, 35% selected political Emg. Eur. 4% 65%
factors, but that was only marginally higher than the 30% who
selected rising oil prices as the biggest risk factor for that regions.
A slow-down in GDP growth in China was seen as the biggest 6. Which emerging market carries the most risk for equity
threat to emerging Asia. investors at present?
Emg. Asia..33% Lat. Amer..29% Emg. Eur..38%
Industry and Performance Trends
A significant percentage of respondents (41%) think that absolute
return funds will dominate new fund launches in their home
markets over the next year. This is somewhat worrisome--despite 7. Which of the following is the most significant risk factor for
the safety implied by their names, such offerings encompass a equity investors in each emerging region?
wide range of strategies with varying degrees of risk, and tend to Emg. Asia Lat. Amer.
be high cost. Interest rate increase in U.S. 21% 39%
Decrease in China GDP growth 61% 18%
Respondents appear uncertain about investment style: Although Further increases in oil prices 11% 0%
the vast majority believe large caps will outperform small caps Political factors 7% 43%
over the next 12 months, respondents were nearly evenly split as
to whether value, growth, or neither style would outperform in the Emg. Eur.
same period. ex-Russia Russia
Interest rate increase in U.S. 26% 20%
With regard to bonds, respondents still appear fairly Decrease in China GDP growth 9% 12%
conservative--not surprising given the market environment: Most Further increases in oil prices 30% 8%
say they favour short-duration issues and developed-market Political factors 35% 60%
government paper to outperform over the next year.
*This survey was completed prior to the downturn in global equity
markets that commenced on Feb. 27.
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB
European Fund Trends. February 2007 2
Which asset class will dominate new fund Are you planning to launch new funds in the next 12
launches in the next 12 months? months?
70% 120%
60% 100%
50%
80%
40%
60%
30%
40%
20%
10% 20%
0% 0%
June November January February June November January February
Equity Funds Fixed Income Funds Balanced Funds Other Yes No
What investment style (value or growth) will What investment style (large cap or small cap) will
perform best over the next 12 months? perform best over the next 12 months?
50% 90%
45% 80%
40% 70%
35% 60%
30% 50%
25% 40%
20% 30%
15% 20%
10% 10%
5% 0%
0% June November January February
June November January February
Large Cap Small Cap Neutral
Value Growth Neutral
Which type of fixed income instrument (long or Which type of fixed income instrument (corporate or
short) will perform best over the next 12 government) will perform best over the next 12
months? months?
19% 15%
33% 11%
67%
55%
Corporate, high yield
Corporate, investment grade
Government, developed market
Long (3 - years) Short (1 - 3 years) Government, emerging market
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB.
European Fund Trends. February 2007 3
European Fund Industry Trends
1. Which asset class will dominate new fund launches in the next 12 months in your country?
June November January February
Equity Funds 46% 48% 62% 44%
Fixed Income Funds 6% 0% 6% 0%
Balanced Funds 27% 12% 15% 15%
Other 21% 40% 18% 41%
Respondents said that equity investments and absolute return funds ("other") will dominate new fund launches in the next 12
months.
2. Are you (as a fund group) planning to launch new funds in the next 12 months?
June November January February
Yes 91% 83% 88% 100%
No 9% 17% 12% 0%
All respondents said they will launch new funds in the next 12 months.
3. Do you foresee an increased number of mergers between fund management groups in Europe in the next 12
months?
June November January February
Yes 63% 60% 53% 56%
No 37% 40% 47% 44%
56% of fund groups said they foresee an increased number of mergers between fund management groups in Europe in the
next 12 months.
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB.
European Fund Trends. February 2007 4
European Fund Performance Trends
4. Which investment style, value or growth, will perform best in the next 12 months?
June November January February
Value 18% 24% 22% 32%
Growth 38% 40% 44% 29%
Neutral 44% 36% 33% 39%
Some 39% of fund groups said they didn't believe either growth or value would outperform over the next 12 months.
5. Which type of equity, large-caps or small-caps, will perform best in the next twelve months?
June November January February
Large Cap 77% 84% 72% 79%
Small Cap 3% 4% 14% 4%
Neutral 21% 12% 14% 18%
79% of fund groups said large caps will perform best in the next 12 months.
6. Globally, how will equities perform over the next 12 months (i.e., MSCI World Index in USD)?
June November January February
Negative 0% 0% 6% 0%
0 5% 15% 24% 14% 30%
6 10% 53% 64% 56% 56%
11 15% 24% 4% 19% 15%
More than 15% 9% 8% 6% 0%
71% of fund groups said equities will gain more than 5% in the next 12 months, of which 15% said equities will gain more
than 10%.
7. Will long-duration or short-duration fixed-income instruments perform best over the next 12 months?
June November January February
Long Duration 38% 24% 31% 31%
Short Duration 62% 76% 69% 69%
A majority of fund management groups said that short-duration fixed income products will perform best in the next 12
months.
8. Which fixed-income sectors will perform best over the next 12 months?
June November January February
Corporate, high yield 18% 8% 12% 15%
Corporate, investment grade 3% 4% 9% 11%
Government, developed market 68% 48% 56% 56%
Government, emerging market 12% 40% 24% 19%
56% of respondents said developed-market government bonds would perform best in the next 12 months.
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB.
European Fund Trends. February 2007 5
9. What currency do you think will be the strongest/weakest in the next 12 months?
January February
Best Worst Best Worst
Euro 40% 27% 50% 5% Fund groups most frequently said the Euro
Sterling 3% 18% 0% 24% would be the strongest currency in the next
12 months, with the Yen a close second.
Dollar 11% 39% 8% 48%
Yen 46% 15% 42% 24%
10. What markets do you think will perform best/worst in the next 12 months?
January February
Best Worst Best Worst
Europe (ex. UK) 31% 6% 37% 12% Europe and Japan were expected by the
0% 15% 0% 16% greatest number of respondents to be the
UK best performing markets over the next 12
USA 17% 26% 11% 12% months. However, Japan was also selected
Japan 29% 15% 37% 32% by a large number of respondents to be the
worst performing market, suggesting
Asia (ex. Japan) 9% 3% 11% 4%
considerable uncertainty among fund
Latin America 11% 24% 4% 8% managers.
Emerging Europe 3% 12% 0% 16%
11. What stockmarket sectors do you think will perform best/worst in the next 12 months?
January February
Best Worst Best Worst
Software 6% 3% 4% 0% A significant percentage of respondents
Hardware 3% 7% 0% 5% said financial services stock are the most
0% 7% 0% 5%
likely to outperform over then next 12
Media months. Utilities stocks were deemed the
Telecommunication 19% 13% 22% 19% likeliest to underperform.
Healthcare 19% 7% 9% 5%
Consumer Services 9% 0% 4% 5%
Business Services 0% 3% 9% 0%
Financial Services 19% 10% 30% 14%
Consumer Goods 6% 7% 0% 0%
Industrial Materials 0% 10% 9% 14%
Energy 16% 13% 13% 10%
Utilities (ex-telecom) 3% 23% 0% 24%
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB.
European Fund Trends. February 2007 6
About the survey
Morningstar editors and analysts conducted this survey between 19 February and 28
February 2007. In total, 28 fund management groups participated in the survey [Benelux 4,
Denmark 3, France 5, Germany 4, Italy 7, Spain 2, Sweden 2, and UK 1]. The companies
surveyed are among the largest in each country [see list on page 7]. On average they
manage some EUR 40 billion in retail fund assets and offer 117 retail funds. Unless
otherwise noted, numbers are expressed as percentages of respondents to a given
question.
This survey (as well as all past surveys) is available in the News Room at:
http://global.morningstar.com/uk/FundTrendsSurveys
About Morningstar
Morningstar is a global investment research firm whose mission is to help investors make
better decisions to reach their financial goals. The company provides investment
information and analytical tools for a number of leading financial institutions, websites and
media.
Over the past 20 years, Morningstar has taken advantage of the technological progress
that has revolutionised world financial markets. Morningstar is now one of the most
recognised brands in the financial services industry in the world. Morningstar's goal is to
revolutionise investing by providing investors with information, ideas, and tools that help
them make sense of the extraordinary range of investment products available today.
In the US, Morningstar has provided an outstanding range of fund information, analytical
tools and investment guidance services since 1984. Synonymous with unbiased,
comparable and easy-to-grasp information about shares and funds, the company has
repeatedly turned innovative measuring principles and presentation forms into commonly
accepted worldwide standards.
Morningstar is the global standard for investment information with offices in:
Australia, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Korea,
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the UK and the USA
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB.
European Fund Trends. February 2007 7
Fund Groups in Survey
Benelux
Spain
ABN AMRO
Ahorro Corporacion Gestion
Aegon
Sogeval
SNS
Veer Palthe Voute
Sweden
AMF Pension Fondförvaltning AB
Denmark
Robur AB
Jyske Invest
Nordea Invest
UK
Sydinvest
Invesco
France
BNP Paribas
CCR
CM-CIC
Crédit Agricole AM
UFF
Germany
Allianz Global Investors
Cominvest Asset Management
Frankfurt Trust
Oppenheim Pramerica
Italy
Aletti Gestielle
Banca Fideuram
BG SGR
BNL Gestioni
Eurizon Capital SGR
Monte Paschi AM
Pioneer IM
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB.
European Fund Trends. February 2007 8
Contact Details
Denmark Norway
Karsten Henriksen Thomas Furuseth
Senior Fund Analyst, Morningstar Denmark Analyst & Editor in Chief,
Tel: +45 3318 6005 Morningstar Norway
Email: karsten.henriksen@morningstar.dk Tel: +47 (0) 23 30 88 54
Web: www.morningstar.dk Email: Thomas.Furuseth@morningstar.com
Web: www.morningstar.no
France
Frederic Lorenzini Spain
Editor-in-Chief, Morningstar France Fernando Luque
Tel: +33 (0) 1 53 40 92 03 Senior Editor/Head of Research,
Email: frederic.lorenzini@morningstar.fr Morningstar Spain
Web: www.morningstar.fr Tel: +34 (0) 91 702 25 94
Email: fernando.luque@morningstar.es
Germany Web: www.morningstar.es
Natalia Siklic
Fund Analyst, Morningstar Germany Sweden
Tel: +49 (0) 89 41559 200 Jonas Lindmark
Email: natalia.siklic@morningstarfonds.de Senior Editor/Head of Research,
Web: www.morningstarfonds.de Morningstar Sweden
Tel: +46 (0) 8 506 46 052
Italy Email: jonas.lindmark@morningstar.se
Mariagrazia Briganti Web: www.morningstar.se
Fund Analyst, Morningstar Italy
Tel: +39 02 303 01 225 United Kingdom
Email: briganti@morningstar.it Christopher Traulsen, CFA
Web: www.morningstar.it Director of Fund Research,
Morningstar UK
Netherlands Tel: +44 (0) 20 3107 0061
Freddy van Mulligen Email: christopher.traulsen@morningstar.com
Senior Editor/Head of Research, Morningstar Benelux Web: www.morningstar.co.uk
Tel: +31 (0) 20 311 90 94
Email: freddy.vanmulligen@morningstar.nl
Web: www.morningstar.nl
© 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB.