Fund managers give us their 2011 predictions

We ask fund managers for their predictions for the next year.

UK small caps

Anthony Cross, manager, Liontrust UK Smaller Equities fund
We are expecting a lot of macro volatility, but underneath it all we think there are still some very exciting stock ideas to be had. The way to make money next year is to get into companies which continue to deliver or ones where people have been overly pessimistic for the last 12 months.

Capita, for example, has been in the doldrums but we would be much more optimistic about it. Government cuts have pushed its price down but we think, on the 12-month view, it is a very strong business with very high recurring income.

We are also excited by a lot of the world beating, mid-cap companies, that have a very strong product range; particularly in engineering where we are going to see continued growth coming out of developed countries.

Our concerns are the classic UK consumer companies. We think it is going to be a very tough and competitive environment for those areas, so we will be happy to shy away from them.

Fixed income

Ian Spreadbury, manager, Fidelity’s Strategic Bond and MoneyBuilder Income funds
Many commentators suggest government bonds are in bubble territory on the basis yields must rise simply because they cannot fall much lower. Crucially however, my expectation for slow economic growth and low inflation is typically favourable for bond returns and I do not share those fears.

I expect moderate returns from corporate bonds in 2011 and believe there is still value in high quality areas of credit markets. Credit fundamentals are steadily improving, corporate bond issuance is low and management teams remain reluctant to gear-up balance sheets. It is not the bear scenario being painted by many.

The market is not without risks: the debt overhang in developed economies is a key risk to the outlook for credit. For this reason I have a focus on defensive names that can withstand a tough economic environment.

European equities

Barry Norris, manager, Ignis Argonaut European Alpha fund
The only certainty is there will be a lot of uncertainty. The investor has to work out the balance of probability of whether negative events such as the break up of the euro, or monetary policy not having an effect on economies, are likely to happen.

Nothing in investing is 100% certain, but it is the uncertainty that creates the opportunities and therefore, there is an asymmetrical risk return in the equity market.

I think 2011 will see equities do very well. I certainly believe it should be a year of very good returns, particularly in German small and mid caps.

Economic growth is a lot stronger than most people have anticipated and will continue to be in 2011. For example, Germany is growing at 5% and I think it will do the same next year; Sweden is growing at 6.5%. If you compare this to the BRIC countries for example, Russia is growing at 4% and China at 8%. People should not write off Europe just yet.

US equities

Felix Wintle, investment director & head of US equities, Neptune
The macro indicators have been negative all year in the US and the market has been hit by outside shocks, such as the sovereign debt crisis in Europe.

Despite this, the market has proven resilient and in 2011 we think economic indicators, like ISM and unemployment, will continue to improve; changing the macro backdrop from cautious to positive.

From a micro point of view, corporate earnings and outlook statements have been excellent and the market has rallied significantly on this good company news. We are confident this is likely to continue next year.

The global economy will continue to recover and many companies in the US, as the world’s primary economic power, will benefit from this.

Quantitative easing has helped move the market higher and for 2011 we believe in the mantra ‘don’t fight the Fed’.