As markets are hit by new waves of volatility, fund managers are trying to rally investors with largely optimistic forecasts for 2015.
The FTSE-100 plunged by 560 points in just six trading days up to last Monday, a fall of 8.5 per cent, signalling that the anxiety which spooked markets in October has not gone away.
But in the annual year end poll of fund managers by the Association of Investment Companies, 37 per cent of managers expect the FTSE-100 to end 2015 between 7000 and 7500, and 47 per cent say 6500 to 7000.
"Some 30 per cent of managers expect interest rates to remain low next year, which was far and away the greatest cause for optimism," the AIC says. "Other causes for optimism were an increase in company earnings (13per cent) and, in equal measure, the falling price of oil, strong balance sheets, and confidence in continued government intervention in the macro economy (all 9per cent)."
There was little consensus on the sectors expected to outperform in 2015, but blue-chips are right out of fashion, favoured by just 4per cent of managers compared to 24per cent last year. Financials, manufacturing, resources (including oil) each gained 12per cent of manager votes, along with smaller companies which were backed by 38per cent of managers a year ago.
At a round table staged by the AIC at its London headquarters this week, managers of global, UK, and small company funds each peered into the crystal ball.
Lucy Macdonald, international manager of the £220m Brunner investment trust, said the oil price and the closer approach of interest rates rising meant "overall we think equity returns are probably going to be more muted than in the last five years". They might still reach 7-8 per cent, and should outpace other asset classes, but volatility would be greater.
Alastair Mundy, manager of the £750m Temple Bar trust, said: "We see a number of concerns around the world, ranging from geopolitical worries to fairly disappointing earnings growth for companies worldwide, and, of course, the end of quantitative easing in the US. All of these factors suggest that equity valuations should not be as high as they are." He added: "So-called cheap stocks are now as expensive as they have been in 25 years."
Gervais Williams, manager of the £150m CF Miton UK Smaller Companies trust and author of 'The Future is Small', said he believed equity portfolios would gravitate towards holding 10 to 20 per cent in small and micro-sized companies, which would "drive valuations much higher", helped by the new inclusion of AIM stocks within Isa investing.
Meanwhile Andrew Bell, chief executive at Witan investment trust, says: " The recent drop in oil prices is a shot in the arm for developed economies and Asia, as the emerging market region is most dependent upon energy imports. Although there are bound to be pockets of pain, in aggregate we have just seen a major income transfer from oil producers to energy consumers, which is likely to buoy consumer spending and assist corporate margins in the year ahead."
Tom Walker, manager at Martin Currie Global Portfolio Trust in Edinburgh, said: "The geopolitical backdrop remains tense but is more than countered by the deep pockets of central bankers and the opportunity cost of "zero" interest rates."