Association of Investment Companies gauges managers' outlook for 2023.
With 2023 now weeks away, investment trust managers picked the UK to be the best performing region next year, and energy to be the top performing sector.
Carried out by the Association of Investment Companies, the study was carried out across the investment company industry between 14 and 30 November this year.
28% of respondents favoured energy as the 2023 winner, beating information technology (21%), the previous favourite.
This was not just the outlook for the next twelve months, but the next five years, indicating just how powerful a theme the energy crisis and transition is expected to play long-term.
Energy has been a major theme in 2022, primarily because of increased focus on the transition away from fossil fuels, but this agenda was accelerated by Russia's invasion of Ukraine and the widespread energy crisis it caused.
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Annabel Brodie-Smith, communications director at the AIC, said that with the war in Europe continuing, it was "understandable" that managers had tipped energy to be the best performer sector of 2023.
However, "predicting information technology to make a comeback is more unexpected", she said.
The jump in inflation this year has acted as a significant headwind to more growth themed sectors such as technology, eroding the potential future earnings of these stocks.
However, according to the study, managers are optimistic about the outlook for inflation, with 61% stating that inflation had already peaked.
While no one believed the Bank of England would reach its 2% inflation target this year, 42% said it would hit between 3-4% in 2023, a decrease on the double digit levels in 2022.
The outlook for a technology rally was not in the publicly listed markets.
Tim Levene, CEO and manager of Augmentum Fintech, said valuations in tech stocks have started to tend back to pre-2020 UK levels, "alongside unprecedented levels of dry powder amongst venture capital funds globally".
He said: "We would expect to see a more active investment climate from Q2 2023 onwards, particularly in the private fintech sector where the opportunity remains significant."
Regions
Moving onto a regional level, and the UK was picked as the most likely to outperform at 25%, ahead of Europe (18%) and US and Emerging Markets (both 15%).
The managers' favourable outlook was not just due to the fact the UK homes several large-cap energy stocks, as the UK remains on a relative discount versus its developed market peers and presents a wide dispersion of share prices.
These are factors Simon Gergel, manager of the Merchants trust, said make the UK an "excellent environment for stock picking, as we are able to identify many strong businesses that appear to be mispriced, offering attractive dividend yields and the prospect of medium-term capital growth".
This positive UK outlook appears inconsistent with this year's fund flow data, which consistently shows UK focused funds experiencing larger and larger outflows.
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Driven by macroeconomic uncertainty via unstable politics and currency, the UK has been characteristically weak this year, with most stocks outside of energy and commodities struggling.
Still, the managers had a more bullish outlook, with 19% forecasting the FTSE 100 to finish somewhere between 8,000 and 8,500 points, and the majority taking a slightly more conservative call at 7,500 and 8,000 points.
On a global level, two main factors could be the source of great market performance, a reduction in inflation and the prospect of the end of the year in Ukraine.
Amongst the bullish outlooks, the reality of a global recession and rising interest rates remain real, as Brodie-Smith pointed out.
"It is interesting to hear managers' views but no-one has a crystal ball," she said. "Investors should focus on investing for the long term by creating a balanced portfolio which meets their needs and, if in doubt, consult a financial adviser."
