Fund managers remain optimistic and are “cautiously bullish" about market returns going forward, despite weak economic forecasts and continuing uncertainty, according to Quilter.

Quilter’s latest Investor Trends Survey asked fund managers to rank their current risk appetite from one (very bearish) to 10 (very bullish) on a six- to nine-month basis.

The average respondent score was 5.4, which Quilter said suggested fund managers did not want to take risk off the table at this stage.

While markets have performed strongly since the immediate aftermath of ‘Liberation Day’ in April, expectations remain weak for real GDP growth.

At the start of 2025, investors expected real GDP growth in the US to be over 2 per cent this year, but that has now fallen to 1.3 per cent for 2025 and 1.6 per cent for 2026.

The UK and Europe have similarly weak prospects, although the downgrade has not been as pronounced as in the UK.

Expectations for 2025 GDP growth was just above 1 per cent for both regions at the beginning of the year, but this has now fallen to 0.88 per cent for the UK and 0.85 per cent for Europe.

While these forecasts would usually indicate interest rate cuts were on the horizon, fund managers believed US interest rates would finish 2025 at around 4 per cent on average and drop to 3 per cent by the end of 2026 amid sticky inflation.

Respondents did not expect inflation to come down significantly, predicting it to come in at 3 per cent at the of this year and 2.8 per cent at the end of 2026.

“News of slowing GDP growth, sticky inflation, tariffs, and interest rates getting stuck would suggest now is the time to be bearish,” commented Quilter investment strategist, Lindsay James.

"Indeed, after a strong rally following the ′Liberation Day’ induced falls in April, market participants would be forgiven for wanting to take a breather and remove risk from the table.

“However, this appears to be far from reality and in fact fund managers remain ‘cautiously bullish’ on the prospects for future market returns.

“Valuations remain toppy in some areas, so for how long such sentiment can continue remains to be seen, but if corporate earnings continue to resist the weak economic backdrop, markets may just have a little higher to go from here.

"A lot of this hinges on what the Fed does with interest rates and how businesses in America deal with increased costs from tariffs.

“The market expects Jerome Powell to stay as Federal Reserve chair, and while the US economy has not quite rolled over, it is clear it is being stressed at the seams. A sustained period of rate cuts, therefore, looks unlikely, while it will probably be the US consumer that bears the brunt of the tariffs.

“As such, there appears to be risks lurking around every corner for investors, but confidence clearly has not been shattered. Consequently, it will be fascinating to track the sentiments of these fund groups going forward.”

---