Home country bias permeates fund views on outlook for markets

Home country bias may extend past a fund’s overweighted asset allocation to domestic investments and to the way that trustees view their country’s future prospects, according to the results of a global investor survey by AXA Rosenberg.

The survey of 196 investment professionals from pension funds, including 29 Australians, showed that while there was a lot of common ground on the outlook for world markets, investors tended to believe that their own regions would likely fare better than the rest of the world believed. For instance, 90 per cent of surveyed investors in Tokyo felt the Japanese sharemarket was undervalued, compared with 26 per cent of Australian investors and 50 per cent of US investors. But 64 per cent of the Australians thought the US was the most overvalued region, compared with only 38 per cent of Americans. While most respondents thought the euro was the currency which was most likely to be the strongest over the next 12 months, followed by the yen, 22 per cent of the Australians felt that the $A would be the strongest. None of the respondents from other countries were so bullish on the $A. Australian investors were also the only ones to expect corporate earnings to be higher over the next 12 months and most thought that Australia was earlier into the business cycle than the rest of the world. Most respondents overall picked Asia ex-Japan as having the strongest corporate earnings this year. The survey was conducted during four separate client briefings late last year, in London, New York, Tokyo and Melbourne. Doug Burton, AXA Rosenberg managing director for Australia and New Zealand, said the next such briefings would be held in early 2009. Burton said that while the results did not represent a statistical sample, they indicated that Australian and New Zealand funds were more likely to invest in absolute returns funds and other high-alpha strategies than funds in other countries. For instance, more Australian investors surveyed allowed their managers to short stocks than investors elsewhere and more had benchmark-free mandates with their managers. A total of 45 per cent of the Australians had benchmark-free equity mandates, compared with 27 per cent of investors in London and 31 per cent in Tokyo. The Australians who allowed their managers to short between 10 and 50 per cent in their equity mandates accounted for 43 per cent, against 22 per cent in London and 13 per cent in Tokyo. None of the participants in New York allowed their managers to short or be benchmark free. Burton noted that Australian institutional investors were increasingly lifting the proportion of their funds going offshore and were therefore facing the same challenges as their peers around the world.