Morgan Stanley’s analysis of U.S. equities for the present and coming year gives away some interesting pointers. For instance, looking at analysts’ estimates it seems that one of the largest growths is expected to occur in Consumer Discretionary sector where the consensus EPS growth would be in the range of 13 percent. Morgan Stanley also has some interesting info regarding hedge fund alpha.

Other sectors with high expected earnings growth are Telecom and Materials. The highest revenue growth is forecasted in Technology, Materials and Utilities.

EPS Growth across sectors

Another important point brought forward by the research report is how hedge funds have lost their ability to deliver alpha in the past years. Moreover in years with high returns on benchmark indices like S&P 500 (INDEXSP:.INX), it becomes harder for hedge funds to outperform.

Hedge Fund Alpha GenerationIn the past few years, the returns on the HFRI Equity Index have had minimum contribution from Alpha generation. Similarly hedge fund alpha has fallen to negative levels in the last two years; however, it seems that the trend has reversed and has been moving up since mid-2012. However, the chart shows that hedge fund alpha was approximately 15% in 1990 and today is negative.

The HFRI Equity Index has gained 3.8 percent in the first two months of this year so far and it seems like hedge funds and asset managers are going to have a good run at least thorugh the first half of this year.

Across market sectors, the best factor alpha has been generated in Technology, Retail, Healthcare and Energy. Throughout the last year the growth stocks have outperformed the value stocks by a fair margin. Since the dawn of QE era, the factors like earnings growth and asset appreciation have been decoupled, which moved in unison in the past. Lately assets have appreciated when monetary easing policies were implemented.

Real earnings growth vs asset appreciation

Morgan Stanley (NYSE:MS)’s analysts estimate an EPS of $99 for 2013 and $110 for 2014. Revenue growth in the S&P 500 has been weak in the past six months, with negative or barely positive numbers posted in the last couple of quarters. The S&P 500 (INDEXSP:.INX) has gained 10.5 percent YTD.