This isn't our first rodeo; we've ridden this bronco before By Noel Lamb, Chief Investment Officer, Americas Region Russell Investments April 22, 2008 A peek at the past / glimpses of the future If you're wondering why Russell's managers are bullish on the outlook for the second half of 2008, it's not necessarily because they're wild-eyed optimists. The fact is we've seen similar conditions before, and it was not that long ago. It just feels worse this time because it is happening to us now, and much of the news is not great. Citigroup announced plans to lay-off another 9,000 employees1,1 and housing foreclosures are up. Higher prices at gas pumps and grocery stores are diminishing the discretionary cash in people's wallets. Although history does not repeat specifics, it often repeats past themes. It might help to remember that what is happening today, while unique, is not unprecedented. In fact, there are similarities between how the market is behaving today, and how it behaved during third Quarter 2002. And if you look at what happened after third quarter 2002, you gain perspective about why our managers maintain their bullish views about what lies ahead. A walk down memory lane: market behavior after third quarter 2002 The summer of 2002 was anything but peaceful and relaxing. On the contrary, it was very volatile, largely due to worries about corporate scandals such as Enron, WorldCom and Tyco. Remember jokes about "CFO" standing for Chief Fraud Officer? The Russell 1000 Index® fell 16.91% over third quarter 2002. Yield spreads on investment grade corporate bonds spiked to 2.4% over treasuries near the end of the quarter. High yield and emerging market debt spreads also surged to near 10.0% levels over treasuries. The start of the fourth quarter looked no better: The Russell 1000 Index fell 5.17% to a low on October 9 (quarter-to-date), but then jumped to 21.22% on November 27 (quarter-to-date). Over the next six months ending March 31, 2003, if fell again by 8.68%. Overall the Russell 1000 Index was up just 4.89% at the end of the first quarter 2003. But once the results of the downturn were fully digested, it surged 33.61% in the final three quarters of 2003. Source: Russell Investments. Fast-forward six years: first quarter 2008 similarities to third quarter 2002 We've had a turbulent start to the year — no question the markets have struggled. The Russell 1000 Index fell 9.48% over the first quarter of 2008. Yield spreads on investment grade corporate bonds spiked to 2.88% over treasuries. Yield spreads for High Yield and Emerging Market debt jumped from 2.58% and 1.54% over treasuries in early 2007 to 7.81% and 3.40% over treasuries, respectively, at the end of the first quarter 2008. Source: Russell Investments. But despite this bleak news, in our March 2008 Investment Manager Outlook, Russell's quarterly survey of U.S. investment managers, two-thirds of the managers responding to the survey still believe that U.S. equity and bond performance will be positive in 2008. Do we expect to see returns of 33% like we did after third quarter 2002? No. But according to the survey, 26% of managers believe market returns will exceed 10% by year-end 2008. Source: March 2008 Investment Manager Outlook, Russell Investments. The survey supports that managers are resilient in their belief that government action will revive the economy, that U.S. investments have room to grow and that equity and bond performance will reclaim positive territory in 2008. My final words: stay positive and remain disciplined. Fund objectives, risks, charges and expenses should be carefully considered before investing. For a prospectus containing this and other important information call Russell at 1-866-676-7680 or go to the prospectus and reports page to download one. Please read the prospectus carefully before investing. 1Reuters News Service 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. Lehman Brothers Aggregate Bond Index is an index, with income reinvested, generally representative of intermediate-term government bonds, investment grade corporate debt securities, and mortgage-backed securities. Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, representative of the U.S. large capitalization securities market. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Index performance is not indicative of the performance of any specific investment and is provided for general comparison purposes only. Index return information is provided by vendors and, although deemed reliable, is not guaranteed by Russell or its affiliates. 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. Copyright© Russell Investments 2008. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. The Russell logo is a trademark and service of Russell Investments. Securities distributed through Russell Fund Distributors, Inc., member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFD 08-0427 First used: April 2008			Expert insights Read more Russell market analysis.   Investment products LifePoints funds Russell funds Separate accounts Institutional funds   Printer friendly version of this page Send feedback or comments Site Search

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