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Investment trust managers expect markets to rise in 2013, annual poll results indicate

Almost 90% of investment trust managers expect stock markets to rise next year, the most bullish result in the 10-year history of the annual December poll by the Association of Investment Companies.

The 87% finding, with the FTSE-100 this week at around 5900, compares with 71% a year ago when the index was at around 5500, among the surveyed managers who run £22 billion or a quarter of the investment trust industry.

Interestingly, blue chips, the most widely favoured sector last year being tipped by 20% of managers, are preferred by only 4% – below 10% for the first time in the poll's history. Instead, managers are tipping financials (22%), technology (17%) and resources (13%), to deliver prize returns.

"The feel-good factor for more than one-third (34%) of managers stems from the view that equities are still good value, while more than one-fifth are buoyed by strong balance sheets (22%)," said the AIC.

"It's not all expected to be plain sailing. All managers are braced for some volatility next year, but the majority feel the year will end higher than it started."

Some 62% of managers expect the FTSE-100 to close next year between 6000 and 6500, with a bullish one in seven tipping a finish of between 6500 and 7000.

However, it is worth noting that five years ago this week, in December 2007, 44% of trust managers blithely expected the FTSE, then above 6400, to finish 2008 between 6500 and 7000.

The real outcome was 4434, at which point the managers were too bearish – 38% believing it would not rise in 2009, and 54% expecting the index to end the year below 5000, when it actually closed at 5413.

Two years ago this week, 77% of managers expected the FTSE to rise in 2011 – but it fell from 5900 to 5572. Last year's prediction by 71% of managers looks like being proved right, with the index this week hovering around 5900.

Only 25% of managers see the eurozone debt crisis as the biggest single threat to equities in 2013, compared with 62% a year ago. One-third of managers cite a global recession as their primary concern, while 13% specify geo-political instability.

"Europe appears to have come in from the cold, despite slipping back into recession, and is one of the two regions most widely expected to outperform next year," said the AIC.

Europe is favoured by 25% of managers (11% last year), with 25% picking emerging markets and 21% the US. It is the fourth year in a row that emerging markets have topped the poll.

Annabel Brodie-Smith at the AIC said: "Despite the difficult economic backdrop, it's actually been a comparatively good year for equities, with the average investment company shares up 7% to the end of November."

She added: "While managers do not claim to have a crystal ball, it is useful to gauge their views. Nevertheless, it's important investors take a long-term view and do not get overexcited by the latest flavour of the month, or market noise."

Katherine Garrett-Cox, chief executive of Dundee-based Alliance Trust, commented: "It does not matter where you are investing, it is very easy to find sound reasons to be bearish about the outlook for 2013.

"The same old issues prevail, whether it is the ongoing eurozone crisis, the austerity plans for the UK, the looming fiscal cliff in the US or the potential of lower GDP growth in China.

"We expect that all of these issues will rumble on into 2013 and beyond. However, we believe there are also plenty of reasons to be bullish.

"The concerns mentioned have led to markets undervaluing companies, which in turn provides long-term investment opportunities for investors, such as Alliance Trust."

Tom Walker, manager in Edinburgh of Martin Currie Global Portfolio Trust, said: "Despite the eurozone muddle and the US fiscal cliff, I suspect the world economy will grow next year, but also that we are looking at several years of only low growth rates.

"Monetary support should keep interest rates low for some time to come. In that low-growth, low-return environment, global equities seem relatively attractive."

Jeremy Tigue, manager of the 144-year-old Foreign & Colonial Investment Trust, said: "There is no shortage of concerns to worry about, but stock market investors are being paid to wait for better times with levels of income that look far more attractive than anything else on offer. The best opportunities are in smaller companies with good growth prospects."

Andrew Bell, chief executive at Witan Investment Trust, said: "Equities are on the cheap side of neutral value, balancing the risk of renewed economic disruption with the upside potential if global economic growth appetite picks up.

"This compares with the negative real returns offered by Government bonds and cash deposits. So, while real losses are likely from investment in these categories, equities are priced to give decent real returns for patient investors, who are prepared to endure the risk of near-term capital volatility."

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