Russell survey: managers grinding it out through strong economic headwinds Managers appear cautious, but not fearful Tacoma, WA — June 24, 2008 — Investment managers are bracing themselves for a difficult slog through the remainder of 2008, believing neither that the economy is entirely out of the woods nor that a serious recession is inevitable. In the latest Investment Manager Outlook, a quarterly survey of investment managers conducted by Russell Investments, manager bullishness fell steeply for the classically defensive health care and consumer staples sectors, hinting that caution — not fear — is driving the markets. Manager bullishness for the health care sector dropped 17 percentage points from 71 percent to 54 percent from last quarter, and bullishness for the consumer staples sector fell 10 percentage points from 47 percent to 37 percent over the same time period. For this quarter, manager bullishness fell for a majority of equity sectors, and not one sector moved up more than five percentage points. "The signs point to a classic, persistent, mid-cycle slowdown," said Erik Ristuben, Russell's chief investment officer for multi-strategy solutions. "Relatively slow economic growth and muted corporate earnings have dampened manager enthusiasm for the near-term, but they remain guardedly optimistic for an economic and market recovery." Managers identified a slowing economy as the most significant potential threat to market performance during the second half of 2008. While 46 percent of surveyed managers had economic growth top of mind, 40 percent were watching inflation, and 38 percent thought both the credit markets and energy costs could still wreak havoc in the markets. Survey respondents were asked to select two factors they thought could negatively affect equity performance the second half of 2008. "The good investment managers are always mindful of how and why the road can become rocky, but investors can find comfort in economic indicators that currently are not overly worrisome. Core inflation remains under control, consumers continue to spend and unemployment is relatively low," said Ristuben. "Managers know the economy and markets are ugly now, but they also know it's time to put their heads down and grind it out." 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. More than 330 managers participated in this survey. Additional findings from the Investment Manager Outlook include: Managers anticipating low point for dollar Manager bullishness for non-U.S. developed market equities dropped to a record low of 42 percent, a 12 percentage point decrease from last quarter. For the first time in 12 quarters, non-U.S. developed market equities fell from the top three bullish asset classes, displaced by emerging market equities. This asset class experienced a slight gain from last quarter, rising to 49 percent manager bullishness from 46 percent. "The shift in bullishness from developed markets to emerging markets is a signal that managers believe the declining value of the dollar may have reached a low point," said Ristuben. "Much of the recent strength in non-U.S. developed market equities performance has been tied to currency, and that competitive advantage could fade as the Federal Reserve and Treasury Department move to strengthen the dollar." While managers in the latest survey remain bullish on large-cap growth stocks, their enthusiasm for this asset class is waning. At 57 percent, bullishness declined seven percentage points from 64 percent last quarter, and is off 18 percentage points from a year ago. Midcap bullishness remained essentially unchanged at 49 percent, but small cap increased to 40 percent from 36 percent last quarter. Technology dominates sector outlook while integrated oils and other energy fall As it has for the past three years, technology continues to dominate managers' outlook and, at 68 percent, was the highest bullish rating of any sector or asset class in this quarter's survey. While manager bullishness for technology rose five percentage points, the integrated oils sector had a significant decrease, falling 12 percentage points to 43 percent manager bullishness. Manager bullishness for other energy also slipped, albeit less dramatically. Optimism for this sector was at 57 percent this quarter, compared to 62 percent in the previous one. "Managers appear to believe the run-up in integrated oils and other energy is overdone," said Ristuben. "Many prominent economists are at a loss to explain the sharp rise in oil prices, and managers may be taking note." 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 provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. With nearly $213 billion in assets under management as of March 31, 2008, Russell serves individual, institutional and advisor clients in more than 40 countries. Russell provides access to some of the world's best money managers. It helps investors 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 and headquartered in Tacoma, Wash. Russell has principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto. Contacts: Jennifer Tice, 253-439-1858 Matt Burkhard, 718-875-2122 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. 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. Consumer staples primarily consists of companies that provide products directly to the consumer that are typically considered nondiscretionary 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. 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. 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 less mature, and to political systems that can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than U.S. and longer-established non-U.S. markets. 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. RFD 08-0660 First used: June 2008 Securities products and services offered through 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.			The REPORT View the entire Investment Manager Outlook. (PDF)   Investment PRODUCTS Russell Funds LifePoints Funds Separate Accounts   Printer friendly version of this page Send feedback or comments Site Search

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