Fund managers are positioned for a cyclical recovery in 2004, according to the latest Merrill Lynch Fund Manager Survey. The survey – which polls about 300 institutional managers from around the world each month – discovered they were overweight materials and industrials and underweight utilities and consumer staples. Seventy-one per cent of December’s interviewees expect equity markets to be higher by the end of 2004. This is the most positive outlook since March.Two-thirds of managers expect equity markets to deliver single-digit returns by the end of this year. However, one in six expect double-digit returns. Merrill Lynch chief investment strategist David Bowers says: “Fund managers have shaken off the anxieties that characterised the first half of 2003 and are approaching 2004 expecting strong returns from equity markets, and as willing as they’ve ever been to take on risk.” Three-quarters of fund managers believe corporate profits will increase, with the consensus being that this will be driven by greater sales as opposed to cost-cutting. And 65% say higher volumes will drive global earnings in the year ahead. In November’s survey this figure was 66%, which was a rise of 14% on October and the largest month-on-month increase for three months. Emerging markets and Japan were the most favoured sectors, with the UK and US the least popular. Only 12% of respondents want to overweight the US this year, a 1% fall on November. The managers expect bond yields to rise, reflecting the belief that global interest rates will go up in 2004. Of the respondents, 85% believe short and long-term rates will rise by the end of the year and, on average, those surveyed believe the Fed will lift rates in seven months’ time.