Equity out performance muted in 2005

Equity markets will continue to outstrip more conservative asset classes over the next year, but will struggle to match the level of out performance they achieved in 2004, investors and their advisers have been warned.

ING Investment Management (INGIM) head of investment strategy Eric Siegloff said the group remained reasonably “constructive” about the prospects of growth compared to defensive assets in 2005.

Siegloff, who is also head of asset allocation at INGIM, predicted equity markets would post “slightly above par” returns in the high single digits in 2005, well above the bond markets, which were expected to return 4 to 5 per cent.

However, the forecast for equities in 2005 was below that of 2004, with markets expected to post a growth rate of around 10 per cent by the end of this year.

“Next year we are anticipating something softer, in the single digits,” Siegloff said.

The standout exception would be Australian equities, which were expected to outstrip global equity benchmarks to return 13 per cent in 2005, according to Siegloff.

He said INGIM had recently increased its tactical exposure to growth assets in its mainstream equity funds to 76 per cent — six percentage points above its strategic growth asset allocation of 70 per cent — to take advantage of a spike in the US market following Bush’s re-election.

However, this was well below the 86 per cent tactical exposure to growth assets held by the group at the beginning of 2004.