Global equities the pick for coming year, according to Australian fund managers
Russell launches Australian Investment Manager Outlook - Quarterly snapshot of institutional investor sentiment
SYDNEY, 28 June, 2005 – Australia’s investment management community is backing the international equities market as the strongest likely performer over the next 12 months, according to a comprehensive new survey of Australian-based managers by Russell Investment Group. The survey also shows that 9 out of 10 managers surveyed believe the Australian equities market is currently ‘fairly valued’ or ‘overvalued’ – reinforcing the need for investors to look offshore for returns.
The new Russell Australian Investment Manager Outlook is an extension of Russell’s existing quarterly Investment Manager Outlook, which surveys the sentiment of US-based managers. The Australian research mirrors the US approach, and aims to provide a clear snapshot of local manager outlook across various asset classes and sectors, as well as topical macroeconomic drivers.
Released today, the Australian research is based on the feedback of more than 40 leading Australian-based managers during the first half of June 2005, and represents one of the most compelling indicators of Australian investment management sentiment available. The research shows that after a strong run in the Australian equity market over the 12 months to May 2005 (+23.52%) compared to international equities (+4.85%), investment managers have become more sanguine about the domestic market’s future return prospects. At present less than 10% of investment managers surveyed believe the Australian equity market is undervalued at current valuations, while more than one third believe the market is overvalued.
According to Russell Chief Investment Officer for the Asia Pacific, Peter Gunning, the research shows Australian small caps and listed property trusts will bear the brunt of shifting investor sentiment over the coming year.
“Sentiment has become most bearish at the small end of the market which has outperformed its large capitalisation counterpart of the past three years. Currently almost three quarters of investment managers are bearish on small cap stock returns over the coming 12 months,” Mr Gunning said.
“The listed property trust sector which has similarly been a darling of investors over the last few years also appears to have lost much of its appeal, with more than two thirds of managers now bearish on the sector and less than 10% bullish. An exceptionally strong performance run combined with a slew of corporate actions, an increasingly high stock specific concentration in the sector and a growing international listed property trust market are all factors behind this change in sentiment,” Mr Gunning said.
Managers believe that some of the best investments lie outside Australia, with international equities standing out as the most favoured asset class. Nearly half the managers surveyed are bullish on international equity returns over the next 12 months. At the same time, around 80% of managers are neutral or bearish on the $A versus the US dollar over the coming year.
On the interest rate front, the majority of managers expect interest cash rates to remain unchanged for the foreseeable future following the Research Bank raising official cash rates from 5.25% to 5.50% in March. The same cannot be said for Australian bond returns however, where managers have the most bearish view of all asset classes. Three quarters of respondents are bearish on the outlook for domestic bonds, potentially reflecting a combination of local and global inflationary pressures, and credit spreads falling to historically low levels.
“Those investors who believe investment managers’ perspective is valid may consider shaking off their affection for domestic asset classes such as Australian equities and listed property trusts and rebalancing their portfolios to international asset classes, particularly if managers’ views on currency are also introduced into the equation,” Mr Gunning concluded.
Further key findings from the Russell Australian Investment Manager Outlook include:
- Within equities, managers remain most bullish about energy (58.5% are bullish), health care (56.1%), and materials (52.5%). Sectors out of favour include consumer discretionary (67.5% are bearish) and industrials (52.5% bearish).
- The importance of China’s economic growth in the region continues to play heavily on investors’ minds, with two thirds of respondents indicating that China has a moderate to high influence on their current investment strategy. One third of managers say China’s growth has little or no influence on their investment strategy.
About Russell Investment Manager Outlook: As the creators of the Russell Indexes and the only firm that monitors more than 3,800 investment managers worldwide, Russell Investment Group has extraordinary access to senior-level investment decision-makers. Prior to the end of each quarter, Russell polls a representative sample of investment managers to collect their top-line opinions about the direction of the markets, sectors and asset classes to watch, and trends on the horizon that could impact investment strategy. In addition to the quantitative results, Russell Investment Manager Outlook provides qualitative analysis and commentary from one of Russell’s senior investment strategists.
Russell conducted the current Australian Investment Manager Outlook between June 8, 2005 and June 14, 2005. The manager research that Russell conducts for investment purposes is done entirely independent of Russell Investment Manager Outlook, and responses to the survey are on a purely voluntary basis.
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