Investment managers forecast modest economic growth and solid returns in 2011

TORONTO, Jan. 13 /CNW/ - According to Mercer's 2011 Fearless Forecast* survey of Canadian and global institutional investment fund managers, investment managers predict that for 2011:

  • the global economies will continue to grow, albeit at a slower pace than 2010;
  • global stock markets will enjoy a solid year; and
  • increases in interest rates will reduce fixed income returns.

"If manager forecast of expected increase in interest rates and solid equity returns in 2011 occurs, plan sponsors should see improvement in their funded positions", said Mark Fieldhouse, Principal in Mercer's investment consulting business in Canada.

Buoyed by a strong fourth quarter, global equity markets closed 2010 with solid performance. Managers expect the trend to continue in 2011, with Canadian equities expected to return 8.5%, US equities to return 9.0%, and foreign markets returning approximately 7.5% in 2011. Emerging market equity returns are expected to exceed each developed market in 2011, with a median expected return of 10.0%.

The Canadian bond markets enjoyed another year of strong performance in 2010 as bond markets rallied on the belief that the economic recovery was losing momentum, in part due to European debt crisis. As in 2010, investment managers anticipate a rise in interest rates which will end the "bull bond market" in 2011 and result in fixed income being one of the least attractive asset classes. Managers anticipate long-term bonds to deliver a return of only 0.3% in 2011. Slightly higher performance is forecasted for the broad and corporate bond markets, 2.0% and 3.0%, respectively.

Due to strong commodity price trends and concerns on the growing U.S. deficit, the Canadian dollar ended 2010 near par with its U.S. counterpart. Managers forecast the loonie will continue to trade at par with the U.S. dollar at the end of 2011. Managers also predict the price of crude oil will remain approximately at its current level, $90 per barrel at the year end.  

Other key investment manager forecasts for 2011:

  • Managers recommend overweighting the allocation to equities by almost 7% for investors with a typical '60/40' asset mix;
  • Only 12% of the managers do not expect the S&P/TSX Composite Index to hit 15,000 within 1-3 years. The TSX Composite closed 2010 at 13,443;
  • Energy and materials are forecast to be the best performing sectors in 2011. In contrast, utilities and consumer staples are expected to lag the market;
  • Managers expect allocations to non-traditional investment mandates and duration matched assets to increase in 2011; and
  • With an expected increase in interest rates, 23% of managers expect real estate to rank amongst the least attractive asset classes for 2011, with only 2% expecting it to be among the most attractive.

The table below summarizes the range of forecast results for key markets for the one-year period ending 31 December 2011:

One Year Forecasts
  Market Returns (% in Canadian dollars) US$/C$ Exchange Rate WTI Crude Oil (US$/barrel)
Broad Bonds

(DEX Universe)
Corporate Bonds

(DEX Corporate)
Long Bonds

(DEX Long)
Canadian Equity

(S&P/TSX)
US Equity

(S&P 500)
International Equity

(MSCI-
EAFE)
Emerging Market Equity (MSCI-EM)
95th Percentile 3.5 4.9 4.6 15.0 16.8 16.5 22.3 1.07 $102
Median 2.0 3.0 0.3 8.5 9.0 7.5 10.0 1.00 $90
5th Percentile -2.0 -0.5 -4.5 4.4 3.6 3.2 3.8 0.91 $75

*The Fearless Forecast is an annual consensus survey of investment managers on capital markets.  Mercer's 20th annual Fearless Forecast, conducted in December 2010, includes predictions and views of the Canadian and global markets from 56 leading Canadian and global institutional investment managers. Together, these firms manage over C$8.6 trillion for Canadian pension funds and other investors globally.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer's investment services include investment consulting and multi-manager investment management. Mercer's 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York and Chicago stock exchanges. For more information, visit www.mercer.ca.

 

SOURCE Mercer

For further information:

Nancy Altilia
416 868 2364
nancy.altilia@mercer.com

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