Mutual fund investors are expected to pour $250 billion into equity funds this year, as they reallocate their equity exposure back to their benchmarks, according to a panel from Deutsche Bank Private Wealth Management. The panelists said they’ll be allocating more into equities than other asset classes.
During a Capital Markets Outlook 2011 event held Wednesday morning, Chief Investment Strategist Larry Adam said investor risk appetite should increase when consumers see their 2010 statements and recent earnings reports.
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Adam said we’re entering a period of “genuine growth,” in which we’ll see a rebound in more productive parts of the economy, including the consumer and business sectors. The third year of a presidential term, which we are going into, is historically the best for economic growth, he said. The firm expects the S&P 500 to reach 1400 by year’s end.
“Equities could not be in better shape,” from a balance sheet and bottom-up standpoint, said Owen Fitzpatrick, head of the U.S. Large Cap and Small Cap Equity teams.
Deutsche Bank believes equities are attractive given recent robust earnings growth. Earnings growth for 2010 for the S&P 500 is estimated at 37 percent, the highest since 1948, according to data by FactSet, Bloomberg Finance. S&P 500 earnings are expected to grow 12 percent this year, which is higher than the 1945 average of 8 percent.
In addition, Fitzpatrick noted a major shift on the part of the U.S. government to target the equity market. Federal Reserve Chairman Ben Bernanke wants to increase flows into equities, and President Barack Obama’s opinion editorial in the Wall Street Journal this week shows that the administration is more business-friendly, Fitzpatrick said.
This year will also see a slew of stock buybacks amounting to $300 billion, which will lead to a boost in mergers and acquisitions activity, Adam said.
The firm is bullish on growth stocks, rather than value, because earnings are being revised upwards in the growth sector and downward in the value sector.