Macro strategists have edge in estimates cold war
With global stock markets facing months of uncertainty, investors are increasingly putting their faith in the more bearish forecasts of macro strategists over company analysts.
Global Radio increases bid for GCapAnalysts, wrongfooted by unrealistic guidance from the companies, have found themselves chasing events, constantly downgrading their forecasts for company profits over the past year. Strategists, who weigh up broad market sentiment and macroeconomic factors, have been more pessimistic.
Fund managers have looked on bemused, but are now concluding that the strategists offer the better advice.
"In the last 12 months, the strategists have been ahead of analysts in reducing forecasts," said Mark Bon, a fund manager at Canada Life.
"In difficult market circumstances, strategists are very useful because they can identify changes in the market. When you have a prolonged period of benign environments ... you tend to focus on the bottom-up, and analysts can point you in the right direction."
Even after several downgrades, analysts were too optimistic on nearly half of the 178 Stoxx 600 companies that have reported second-quarter results, according to Thomson Reuters data.
"Analysts tend to be more optimistic about the earnings outlook of individual companies generally ... They typically have a bias for thinking earnings will be higher than they actually are," said Andrew Clare, professor of asset management at Cass Business School.
"We've just experienced a particularly strong earnings cycle, moving from below earnings trend in 2003 to quite a bit above earnings trend in 2007. As a result, reversion to mean is coming more quickly than previous cycles," said Timothy McCarron, who runs Fidelity's $8.5 billion (4.5 billion pound) European fund.
"That's why it's hard for a bottom-up analyst to get numbers sufficiently down."
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