Fund managers position for sharemarket recovery
Managers take opportunities in undervalued markets and shift from cash to equities
SYDNEY, 1 December 2008 - After months of falling asset prices and defensive attitudes, fund managers are moving away from the safety of Australian cash towards growth such as Australian and international equities, according to the latest Russell Investments quarterly Investment Manager Outlook (IMO). The survey of Australian fund manager attitudes found that only 13 per cent of managers are bullish on the outlook for Australian cash this fourth quarter, compared to 50 per cent in quarter two 2008.
The move from cash into equities reflects the growing optimism in managers' attitudes, with 54 per cent of managers bullish towards Australian equities this quarter compared to 32 per cent of respondents in the second quarter in 2008. International equities were also viewed more positively this quarter with 49 per cent of managers bullish towards international equities compared to 30 per cent of managers this time last year.
The November survey found that the proportion of managers who view the market as undervalued rose to 56 per cent this quarter, an increase from 11 per cent in the last quarter of 2007. This was also reflected in the increasingly bullish attitude towards the Australian dollar versus the US dollar this quarter, with bullish views increasing to 45 per cent this quarter up from 11 per cent in the previous quarter.
Andrew Pease, Investment Strategist at Russell Investments said: "The past twelve months have been characterised by a flight to safety away from equities and into cash, however the latest results show that this trend is slowly reversing. Managers are becoming more bullish and are slowly buying up assets they think are undervalued."
The Russell IMO surveys Australian fund managers each quarter on their sentiment across a variety of investments, including local and international equities, listed property trusts, bonds and cash. Forty one fund managers responded to the survey, which provides one of the most comprehensive indicators of current market sentiment available in Australia.
Sector Outlook
The large correction in commodity prices and mining stocks has seen managers become more positive on the metals and mining dominated materials sector and on the energy sector. In June, a net (bulls minus bears) 14 per cent of managers were bearish on the outlook for the materials sector, and bears equalled bulls for energy stocks. In the latest survey however, a net 6 per cent now favour materials stocks, and 17 per cent are now positive towards the energy sector.
The change in attitudes towards consumer discretionary and consumer staples stocks reflect the broad shift in manager sentiment towards optimism. Consumer discretionary stocks are the classic recovery investment. Sentiment towards the sector is still bearish, with a net 31 per cent of managers negative on the sector however this has improved from -52 per cent in the second quarter. This suggests that momentum is moving towards this sector. The consumer staples sector is similarly the classic defensive play. A net 11 per cent of managers are positive on the sector, down from 19 per cent in the second quarter 2008.
Surveyed managers showed a clear preference for sectors including healthcare sector (47% bullish versus 8% bearish); industrials (46% bullish versus 23% bearish); telecommunications services (42% bullish versus 25% bearish) and information technology (42% bullish versus 18% bearish).
Australian listed property trusts remain a source of debate. Despite 45 per cent of managers remaining bearish in outlook towards the sector, the proportion of managers bullish towards the LPT sector increased from 9 per cent in the fourth quarter in 2007 to 40 per cent this quarter. Furthermore, the steady preference for Australian bonds over the past year has been reversed this quarter, with bullish views down 12 per cent and bearish views up 26 per cent from last quarter results. However 38 per cent of managers still remain bullish on the asset class which is high by historical standards.
Financials is another sector that has recently generated strong debate. Not surprisingly the survey results indicate that opinions on the strength of the sector are divided. Forty two per cent of managers (down from 50% last year) remain bearish, while 44 per cent of managers (19% more than last year) have taken a bullish view, most likely taking into consideration the potential value to be found after already substantial devaluations, along with the stabilising effects of central bank interventions and government guarantees.
“There is no doubt that Australia is heading for an economic slowdown in 2009, however the November survey indicates that managers are looking for opportunities in less defensive asset classes and prepared to take greater risks than a year ago. The fall in bullish attitudes towards the Australian bond sector is also evidence of increasing confidence by fund managers in Australia,” Mr Pease said.
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