Trying Again to Find the 'Sure Thing'

'Tis the season to reminisce about the year gone by ... and then make bold predictions about the year ahead.

Last year at this time, TheStreet.com surveyed fund managers for their biggest surprises of 2004, before turning around to find out their sure things for 2005. The results -- as one might expect from a gaggle of fund managers talking about the market -- varied wildly.

When it came to the biggest surprises of 2004, the stubbornly low interest rate environment was the real shocker, followed by the jump in oil prices to the $50-a-barrel range. Continued small-cap domination and drugmaker Merck's (MRK) collapse also were stunners a year ago.

This time around, low interest rates -- and inflation -- were once again a surprise to fund managers, but not a bigger one than the resiliency of the U.S. economy in the face of higher oil prices. As for corporate meltdowns in 2005, it was General Motors(GM) replacing Merck in the driver's seat.

In terms of "sure things," the bulls outnumbered the bears when they made their picks last year, although neither camp actually proved prescient as the equity markets hugged the flat line for most of 2005. Energy bulls, like John Derrick of the (USUTX)U.S. Global Investors Tax-Free fund nailed the rally in oil, while economic bears, like Frank Holmes of the (ACBGX)Holmes Growth fund failed to foresee the continued growth of the U.S. economy.

And what about those fund managers last year who said 2005 would be the year that large-cap growth stocks made their long-awaited comeback?

Most, like Robert Millen, portfolio manager of the (JENSX)Jensen fund, say it's still a sure thing. Even if it arrives a year later.

"In 2006 we will get the large-cap run-up we should have seen in 2005," says Millen, whose biggest surprise in 2005 was that quality large-cap growth companies failed to take off despite strong earnings performances.

2005's Biggest Surprises

Fund managers are split over where the economy is headed in 2006, but there is little disagreement over its surprising resiliency in 2005, especially in the face of strong and varied headwinds.

Neil Hennessy, portfolio manager for the (HFCGX)Hennessy Cornerstone Growth fund, was astonished that oil prices at $70 a barrel didn't undo the economy. Barry James of the (GLRBX)Golden Rainbow fund figured the Fed's rate hikes would slow things down. And Barbara Walchli, portfolio manager for the (ROCAX)Aquila Rocky Mountain Equity fund, believed that higher minimum credit card payments would help wear down the all-important American consumer.