Russell survey: Manager bullishness for fixed income reaches record levels
Managers look to improving credit situation as leading indicator of recovery
SINGAPORE, MARCH 26, 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."
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/.
Russell Investments is a global investment company with US $150 billion in assets under management as at December 31, 2008. Russell serves individual, institutional and adviser 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.
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.
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