Because of the bull run over the past five years, it has become harder for portfolio managers to find stocks with good value, and as a result, mutual fund returns are likely to decline, fund managers said at the Morningstar conference, according to Reuters.

Many of the managers spoke of “caution,” “danger” and “unsustainable returns,” applying the terms equally to equities and bonds, both domestic and international.

“If we are to rely on history as a predictor of future returns, we are likely to be intensely disappointed,” said Ranji Nagaswami, chief investment officer at AllianceBernstein Investments. “The future is simply unlikely to be anywhere near the recent or even historical past. Bonds are not likely to have returns in double digits. And relative to their long-term history, equities, too, are likely to return a lot less.”

Low interest rates have boosted bonds, stock buybacks and leveraged buyouts, and as a result, the valuation of both bonds and stocks has increased markedly in the past four years. Even internationally, where investors have enjoyed strong returns over the past few years, valuations have increased to the point where stocks and bonds aren’t likely to deliver the same strong returns.

“The tailwinds that we had for the last five or six years are diminishing,” agreed David Herro, chief investment officer of international equities at Harris Associates.

Morningstar’s top international fund manager for 2006 has delivered returns of 24.7% in his Oakmark International Fund and 31.6% in his Oakmark International Small Cap Fund. But he said that’s not sustainable.

“Do not get used to returns with two’s in front of them, three’s and four’s. Do not even get used to mid-teens,” Herro said.

And Mark Headley, chief executive officer of Matthews International Capital Management, noted that China and India are raising interest rates to try to cool their rapidly rising stock markets. “Sooner or later, that’s going to take a toll on their domestic economies. You’ve got tot have your amber warning lights on there,” Headley said.

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