Investment Manager Bullishness for U.S. Large-cap Growth Soars — Now at Seven-Quarter High (Russell.com)

Investment Manager Bullishness for U.S. Large-cap Growth Soars — Now at Seven-Quarter High
Managers Expect Fed to Stop Raising Short-term Rates Early Next Year

December 21, 2005 — Eighty percent of U.S. investment managers responding to the latest Investment Manager Outlook, a quarterly poll of investment managers conducted by Russell Investment Group, are bullish on the prospects for U.S. large-cap growth stocks over the next year. The managers' degree of bullishness for large-cap growth stocks not only significantly exceeds that of previous quarters, but is also the highest recorded for any asset class or market sector in the two-year history of the quarterly surveys.

"U.S. investment managers are bullish on large-cap growth based on what they know, what they believe and what they expect," said Randy Lert, chief portfolio strategist, Russell Investment Group. "Managers know that the economy has been resilient through some challenging times, they believe that the long-awaited swing from value to growth stocks has begun and still has some ways to go, and they expect the Fed to stop raising rates before short-term rates inflict any significant damage to economic growth."

Managers responding to the Russell survey believe that the Federal Reserve will stop raising short-term rates early next year. Over two-thirds of the surveyed managers (67 percent) believe the Fed will end its current campaign once the federal funds rate reaches either 4.5 or 4.75 percent, which could occur when the Fed next meets at the end of January or later in March.

"The fear that the Fed, under new chairman Ben Bernanke, might damage economic growth in the course of its current tightening cycle has clearly abated," said Lert. "While concerns over the Fed have tended to dampen stocks in recent months, managers now appear ready for the reverse to take place — in the market overall and for large-cap growth in particular."

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 a representative sample 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. More than 110 managers responded.

Additional findings from the Investment Manager Outlook include:

Technology Revisited: Manager Penchant for Growth Carries Into Market Sectors
Managers have turned strongly bullish on technology stocks this quarter, which tend generally to be growth stocks. As a result, the sector now rivals health care — another growth sector — for the top spot in bullishness. Health care has occupied the lead position for manager bullishness over the life of the survey. A year ago, less than half the managers were bullish on technology stocks, and that number has now grown to 72 percent. Seventy-four percent of managers are bullish on health care.

"Internet stocks have enjoyed a strong run-up recently while traditional technology stocks have fared less well," said Lert. "Managers are voicing their bullishness across all styles of growth — large-cap, mid-cap and small-cap — and this sentiment has clearly found its way into the technology sector."

Financial Services Ready to Go When Interest Rates Stop
Managers have shown an increased preference for financial services, and bullishness for this sector has increased to 40 percent from 26 percent for the last quarter. This increasingly positive sentiment toward investment banks and financial institutions runs in tandem with the expectation for a stabilized interest rate environment.

"Managers believe the economy is growing and expect the Fed tightening cycle to end soon — setting the stage for the financial services sector to prosper," said Lert. "Managers may also be expecting strong performances by investment banks and financial institutions that specialize in regional mortgages."

About Investment Manager Outlook
Prior to the end of each quarter, Russell polls a 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, 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 at www.russell.com/IMO.

Russell conducted the current Investment Manager Outlook between November 28 and December 5. The manager research that Russell conducts for investment purposes is done entirely independent of Investment Manager Outlook, and responses to the survey are voluntary.

About Russell
Russell Investment Group, a global leader in multi-manager investing, provides investment products and services in more than 40 countries. As of September 30, 2005, Russell manages more than $148 billion in assets and advises clients worldwide representing more than $2.3 trillion. Founded in 1936, Russell is a subsidiary of Northwestern Mutual and is headquartered in Tacoma, Wash., with additional offices in New York, Toronto, London, Paris, Singapore, Sydney, Auckland and Tokyo.

Contact:
Jennifer Tice 253-439-2921

Large capitalization (large cap) growth stocks are securities which fall into the Russell Top 200® Index. This index consists of the top 200 securities in the Russell 1000® Index, as ranked by total market capitalization. This "Blue Chip" large capitalization index represents approximately 75% of the Russell 1000® total market capitalization. As of the latest reconstitution, the average market capitalization was approximately $45.9 billion; the median market capitalization was approximately $24.0 billion. The index had a total market capitalization range of approximately $386.9 billion to $13.8 billion. Growth stocks tend to exhibit higher price-to-book and price-earnings ratio, lower dividend yields and higher forecasted growth levels.

Middle capitalization (mid cap) growth stocks are securities which fall into the Russell Midcap® Index. This index measures the performance of the smallest 800 securities in the Russell 1000® Index, as ranked by total market capitalization. This index accurately captures the medium-sized universe of securities and represents approximately 25% of the Russell 1000® total market capitalization. As of the latest reconstitution, the average market capitalization was approximately $4.7 billion; the median market capitalization was approximately $3.6 billion. The index had a total market capitalization range of approximately $13.7 billion to $1.8 billion. Growth stocks tend to exhibit higher price-to-book and price-earnings ratio, lower dividend yields and higher forecasted growth levels.

Small capitalization (small cap) growth stocks are securities which fall into the Russell 2000® Index. This index measures the performance of the smallest 2,000 securities in the Russell 3000® Index, representing approximately 8% of the Russell 3000® total market capitalization. As of the latest reconstitution, the average market capitalization was approximately $664.9 million; the median market capitalization was approximately $539.5 million. The index had a total market capitalization range of approximately $1.8 billion to $182.6 million. Growth stocks tend to exhibit higher price-to-book and price-earnings ratio, lower dividend yields and higher forecasted growth levels.

Non-U.S. markets entail different risks than those typically associated with U.S. markets, including currency fluctuations, political and economic instability, accounting changes, and foreign taxation. Securities may be less liquid and more volatile.

Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US and longer-established non-US markets.

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.

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 base, 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.

Consumer staples are primarily companies that provide products directly to the consumer that are typically considered non-discretionary items based on consumer purchasing habits. Because such companies typically offer products that are not dependent on cyclical economic conditions, their securities are frequently considered defensive or conservative.

Consumer discretionary and staples are companies that manufacture products and provide discretionary services directly to the consumer. Some industries included in this sector are jewelry, watches and gemstones, advertising agencies, cosmetics and household furnishings.

Integrated oils include domestic and international integrated oil companies involved in all parts of exploration, production and refining process.

Other energy includes all energy related business 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.

Materials and processing contains companies that extract or process raw materials. Some industries included in this sector are agriculture, fishing and ranching, building materials, forest products and steel.

Health care companies are involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals, and health care facilities and services.

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RFD 05-5647 First used: December 2005

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