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Russell survey: Manager bullishness for fixed income reaches record levels Managers look to improving credit situation as leading indicator of recovery Tacoma, WA — March 25, 2009 — For the first time in the five-year history of the Investment Manager Outlook, a quarterly survey of investment managers conducted by Russell Investments, professional money managers were more bullish for fixed-income asset classes than equities. Sixty-seven (67) percent of managers surveyed were bullish on corporate bonds, and 61 percent were bullish on high-yield bonds. These two asset classes led all others with U.S. large cap growth equities following at 57 percent. "In this environment of caution and realism, managers are finding opportunity in spreads between high-quality corporate bonds and Treasuries that are at historic levels," said Erik Ristuben, Russell's chief investment officer, North America. "Managers also see attractiveness in high-yield bonds, which may constitute a very good value compared with a possibly even more volatile equities market, especially for those managers who can discriminate and effectively pick the winners." Manager sentiment for equities has fallen considerably from last quarter, but remains essentially positive. While 57 percent of managers still believe the market to be undervalued, 72 percent felt the same way in December. Thirty-three (33) percent of managers now believe the market to be fairly valued, a number that is up from 20 percent last quarter. "Managers are more cautious than they were three months ago," said Ristuben. "The promise of another government stimulus package and of a market driven by fundamentals has been replaced with an understanding that the current economic issues are complex and deep and that the market remains vulnerable to fear." Indicators of recovery When asked what they were relying on as an indicator of recovery in the financial markets, the managers pointed to three different variations on the theme of an improving credit situation. The top response was "business credit crunch eases," which was mentioned by 50 percent of managers. "Credit risk normalizes" was second at 45 percent, and "housing market stabilizes" was third with 42 percent. "Managers want to know that the economy is functioning properly again and believe that the credit situation is the key to understanding when the economy and markets are set to recover," said Ristuben. "The government is working to resolve the credit crisis, and managers will be watching these efforts very closely along with how the markets respond." Russell's recently launched website Helping Advisors, which provides financial advisors with a suite of tools designed to help keep their clients and businesses on track in the current financial environment, features an Economic Recovery Dashboard that includes visual snapshots of current market conditions relative to their typical long-term ranges. Two of the leading indicators available on this site are related to credit risk and corporate debt. Additional findings from the Investment Manager Outlook include: Manager enthusiasm for equities cools; financial services and health care take biggest hits The percentage of bullish managers decreased for all equity asset classes except emerging markets. Manager bullishness of the most favored equity asset class, U.S. large cap growth, declined 10 percentage points from 67 percent to 57 percent. Manager sentiment for value stocks decreased across all sizes, with bullishness for U.S. large cap value dropping 19 percentage points from 61 percent to 42 percent. Manager bullishness for the financial services sector took a downward turn, falling from 45 percent to 30 percent. Bearishness for this same sector increased from 36 percent to 47 percent. Manager bullishness for health care also fell 15 percentage points from 66 percent to 51 percent. "The caution and concern that managers have toward the equities markets in general are amplified for financial services," said Ristuben. "Managers are reassessing how long the government assistance targeted at financial institutions will take to have an impact and are concerned by back-to-back major drops in the GDP and the severe rate of economic decline." Managers remained steady on the technology sector, keeping their bullishness at 62 percent and placing it at the top of all equity sectors. Manager bullishness for other energy and integrated oils also rose, moving from 38 percent to 51 percent and 37 percent to 42 percent, respectively. Russell's Investment Manager Outlook is intended to generate a meaningful snapshot of investment manager sentiment each quarter. For the current installment of the survey, Russell collected the opinions of senior-level investment decision-makers at U.S. large and small cap equity investment managers, as well as U.S. fixed-income investment managers. About 228 managers participated in this survey. About Investment Manager Outlook Prior to the end of each quarter, Russell polls a sample of investment managers to collect top-line opinions about their outlook for 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, the Investment Manager Outlook provides qualitative analysis and commentary from one of Russell's senior investment strategists. Detailed results and analysis from the Investment Manager Outlook are available on www.russell.com/IMO. For Index data, please visit www.russell.com/indexes/. About Russell Russell Investments is a global investment company with $150 billion in assets under management as of December 31, 2008. Russell serves individual, institutional and advisor clients in more than 40 countries and provides investment solutions including mutual funds, retirement investments, institutional asset management, implementation services and global stock market indexes. Russell is world-renowned for its depth of manager research, quality of manager selection and access to some of the world's leading investment managers. It helps investors of all sizes put this access to work in corporate defined benefit and defined contribution plans, and in the life savings of individual investors. Founded in 1936, Russell is a subsidiary of Northwestern Mutual Life Insurance Company. Headquartered in Tacoma, Russell operates principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. Contacts: Jennifer Tice, 253-439-1858 Matt Burkhard, 718-875-2122 Important notes: Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. This is not an offer, solicitation, or recommendation to purchase any security or the services of any organization. Large capitalization (large cap) investments involve stocks of companies generally having a market capitalization between $10 billion and $200 billion. The value of securities will rise and fall in response to the activities of the company that issued them, general market conditions and/or economic conditions. Middle capitalization (middle cap) investments involve stocks of companies generally having a market capitalization between $2 billion and $10 billion and considered more volatile than large cap companies. Mid cap investments are often considered to offer more growth potential than larger caps (but less than small caps) and less risk than small caps (but more than large caps). Small capitalization (small cap) investments involve stocks of companies with smaller levels of market capitalization (generally less than $2 billion) than larger company stocks (large cap). Small cap investments are subject to considerable price fluctuations and are more volatile than large company stocks. Investors should consider the additional risks involved in small cap investments. Bond investors should carefully consider risks such as interest rate, credit, repurchase and reverse repurchase transaction risks. Greater risk, such as increased volatility, limited liquidity, prepayment, non-payment and increased default risk, is inherent in portfolios that invest in high yield ("junk") bonds or mortgage backed securities, especially mortgage backed securities with exposure to sub-prime mortgages. Stock/Equity investors should carefully consider risks such as market risk when investing. There are no guarantees when it comes to individual stocks. Any stock may go bankrupt, in which case your investment may be worth nothing. Treasury Bills ("T-bills") are short-term debt securities issued by the US government with maturities of usually one year or less. Fixed income investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Growth investments focus on stocks of companies whose earnings/profitability are accelerating in the short term or have grown consistently over the long term. Such investments may provide minimal dividends which could otherwise cushion stock prices in a market decline. Stock value may rise and fall significantly based, in part, on investors' perceptions of the company, rather than on fundamental analysis of the stocks. Investors should carefully consider the additional risks involved in growth investments. Value investments focus on stocks of income-producing companies whose price is low relative to one or more valuation factors, such as earnings or book value. Such investments are subject to risks that their intrinsic values may never be realized by the market, or, such stock may turn out not to have been undervalued. Investors should carefully consider the additional risks involved in value investments. Financial Services sector consists of companies that provide financial services including banking, finance, life insurance, and securities brokerage, and services companies. Technology sector primarily consists of companies that serve the electronics and computer industries or that manufacture products based on the latest applied science. Health care sector primarily consists of companies involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals, and health care facilities and services. Other energy: Companies included in this sector are all energy-related businesses other than those included in the integrated oils sector. Two distinct groups are: (1) gas distributors and gas pipelines and (2) other energy companies which include mining, producing, servicing, and drilling companies. Integrated oils: Included in this sector are domestic and international integrated-oil companies involved in all parts of the exploration, production and refining process. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Russell Investments is the owner of the trademarks, service marks and copyrights related to its indexes. Russell Financial Services, Inc. (formerly Russell Fund Distributors, Inc.), member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFS 09-1792 First used: March 2009			The report View the entire Investment Manager Outlook. (PDF)   Investment products Russell funds LifePoints® Funds Separate accounts Printer friendly version of this page

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