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

Last year at this time,

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


(MRK) - Get Merck & Company Inc. Report

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) - Get General Motors Company Report

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


U.S. Global Investors Tax-Free fund nailed the rally in oil, while economic bears, like Frank Holmes of the


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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

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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

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Hennessy Cornerstone Growth fund, was astonished that oil prices at $70 a barrel didn't undo the economy. Barry James of the

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Golden Rainbow fund figured the


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.

None of those issues, nor Hurricane Katrina or low presidential ratings, managed to slow down the U.S. economy. The GDP growth rate was 3.8% in the first quarter, 3.3% in the second and a robust 4.1% in the third.

Moreover, for some fund managers, the bigger surprise was that the factors that were supposed to slow economic growth didn't cause a jump in inflation.

"It's truly extraordinary that inflation remained contained considering the spike in energy prices and the rash of hurricanes," says Eric Barden, portfolio for the

( TCVGX)Texas Capital Value & Growth fund. Barden isn't sure whether the low inflation environment can last, however, as his sure thing for 2006 is for energy prices to remain lofty.

"Look at the

Conoco Phillips

(COP) - Get ConocoPhillips Report


Burlington Resources

(BR) - Get Broadridge Financial Solutions Inc. Report

deal," says Barden. "If Conoco did not think energy prices of natural gas were going to stay high they would not have done that deal. Those guys are savvy."

Surprising and Sure Thing Stocks

Charles Norton, portfolio manager for the

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Vice Fund, couldn't get over the monumental collapse of the world's largest automaker, General Motors. "It's still a shock seeing such an American icon more than cut in half and people talking about bankruptcy," he says.

A more welcome surprise, at least for Jim Huguet of the

(IGAAX) - Get International Growth and Income Fd Cl A Shs Report

TA IDEX Great Companies America fund, was the continuing shine of

Apple Computer's

(AAPL) - Get Apple Inc. Report

shares. Huguet says his sure thing tech winners for next year will be PC peripherals maker


(LOGI) - Get Logitech International S.A. Report

and chip outfit

SiRF Technology

( SIRF).

Meanwhile, Marty Koenig, manager of the

( IHLAX)Integrity Health Sciences fund, is not only expecting "the marketwide rally we didn't get in 2005," but a breakout year for cholesterol lowering-drug maker

Kos Pharmaceuticals

( KOSP).

Target Practice

In last year's poll, Ted Parrish, co-portfolio manager of the

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Henssler fund, predicted oil would drop to $30 a barrel. Well, that may not have worked out for him, but it did not scare him off of taking on another highflying commodity.

"We see gold going down below $400 next year," says Parrish. "There is too much supply and speculation in the gold market to sustain these prices."

Meanwhile, John Derrick, who accurately predicted a year ago that oil would hover around $60 a barrel, says his sure thing is the yield on the 10-year Treasury note falling below 4%. "There is no wage inflation and companies are taking a conservative view," says Derrick. "There is a good chance the Fed is going to overdo their rate-hike strategy and we are going to see some serious curve inversion."

Neil Hennessy also is engaging in some target practice this year. Last time around, Hennessy said "that negativity would abate on Wall Street." Well, maybe if you are a glass half-full kind of person, it did. This year, Hennessy was more explicit, saying that "the market will not only climb the wall of worry but clear it all the way through



Japan Also Rises

On the international front, market veteran Tom Cameron, portfolio manager behind the

( ICRDX)Rising Dividend fund, says, "There will be a problem feeding people in large parts of the world due to serious droughts in China, India and Brazil."

Don Quigley, portfolio manager for the

(BJBGX) - Get Aberdeen Total Return Bond Fund Report

Julius Baer Total Return fund, firmly believed a year ago that U.S. interest rates would be heading higher. Perhaps that's why Quigley's biggest surprise of 2005 was that rates and inflation stayed so low.

Since he didn't get his sure thing last year in America, Quigley is trying a different country in this year's survey: Japan. "Japanese interest rates will go higher because they are leaving the deflationary environment behind."

Speaking of Japan, Asha Joshi, fund manager for the

( PYMRX)Payden Market Return fund, says that her biggest surprise was Japan's resurgence "after so many false starts."

Both Joshi and Quigley say it's a sure thing that the Fed will end its series of rate hikes in 2006.

Well, we could have told you that!

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