Russell survey: 70% of investment managers expect continued volatility in year ahead but most plan to stay the course
Seattle, WA December 14, 2011 In 2011, the U.S. equity markets experienced nearly unprecedented levels of volatility. According to the latest Investment Manager Outlook (IMO), a quarterly survey conducted by Russell Investments, 70 percent of investment managers expect a similar level of volatility to continue through 2012. Of that majority number, 63 percent say that despite these expectations they are not planning any changes to their portfolio positioning.
Managers that feel volatility will be tempered in 2012 are in the minority at 30 percent, and reasons cited include expectations for successful resolution of issues in Europe and other macroeconomic uncertainties.
According to the latest survey, nearly half of managers (49 percent) also indicated that they believe the market to be currently undervalued and 45 percent see it as fairly valued.
"The last half of 2011 has proven to be a rollercoaster of market volatility, as issues in Europe and the U.S. drag on and new shocks to the system continue to appear. Given the wide variety of issues and uncertain macroeconomic outcomes, it is reasonable to expect that volatility will continue into next year," said Rachel Carroll, consulting client executive at Russell Investments. "We are still seeing good stock valuations and managers believe there are attractive opportunities, but in an environment with so much lingering uncertainty, managers may be wary of having too much exposure to riskier asset classes."
Likely echoing concerns around continued volatility in Europe, bullishness for non-U.S. developed market equities saw a 12 percentage point decrease from the September 2011 iteration of the IMO survey to 33 percent the lowest point since March 2009.
"While some managers believe we will see resolution of the issues in Europe in 2012, most are still highly concerned, particularly with the growing expectations of a Eurozone recession in the near future and the potential impact on the United States," said Carroll. "While we've seen some progress with the adoption of new government regimes and the realization of the necessity of austerity measures, managers are keeping an eye on the peripheral European nations generating headlines recently. Like many investors, managers likely want to see a more final 'solution' laid out before they begin to expect stability."
Russell's Investment Manager Outlook is an ongoing survey intended to generate a meaningful snapshot of investment manager sentiment each quarter. For the current installment of the survey, Russell collected the opinions of 200 U.S. senior-level investment decision makers at equity investment management firms as well as at fixed-income investment management firms. Additional findings from the latest Investment Manager Outlook include:
Managers' asset class views echo increased uncertainty around risk
In the latest survey, U.S. large cap growth equities (58 percent bullishness) and emerging market equities (56 percent bullishness) saw major drops in manager bullishness, 15 and 18 percentage points respectively, compared to the September 2011 survey.
At 61 percent bullishness, U.S. large cap value equities led in terms of manager bullish sentiment, and other value equities saw notable increases with U.S. midcap value (51 percent bullishness) and U.S. small cap value equities (45 percent bullishness) increasing 13 and 10 percentage points respectively from September 2011.
High-yield bonds (50 percent bullishness) and corporate bonds (41 percent bullishness) also saw considerable gains in manager bullishness in the latest survey, up 12 and 8 percentage points respectively since September 2011.
"Overall, managers are finding many of the major equity classes with more risk exposure less appealing in light of the expected continuation of a volatile market environment. With lower growth expectations across the globe, value stocks and particularly higher quality value stocks likely look attractive to managers in a relative sense," explained Carroll. "Additionally, since yields on U.S. Treasuries are currently at such low levels, higher yielding strategies, such as corporate bonds, high-yield bonds and high dividend-paying value equities, may be appealing options to managers."
Sector sentiment shuffle
At 73 percent bullishness, the technology sector continues its long-standing run as the most-favored sector amongst managers surveyed for the IMO, up two percentage points from September 2011.
The consumer discretionary sector saw the largest gain in bullishness, rising nine percentage points to 50 percent bullishness. Most other sectors saw minor drops in bullish sentiment, including health care (down seven percentage points to 47 percent bullishness) and financial services (down seven percentage points to 31 percent bullishness).
"The increased bullishness for the consumer discretionary sector may reflect managers' interest in buying back some of the more economically sensitive or cyclical stocks that were oversold in the third quarter," said Carroll. "While many investors have been cautious about the consumer discretionary sector due to concerns about consumer spending levels and unemployment, the diverse consumer discretionary sector includes not only retail stocks, but also automobiles, media and gaming, and may provide attractive opportunities for managers doing individual stock analysis."
More about Russell's Investment Manager Outlook
More information about the IMO, including a video and a full report of findings, can be found at: http://www.Russell.com//US/market_insights/Investment_Manager_Outlook/investment_manager_outlook.asp.
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.
As a leader in multi-manager investing and the creator of the Russell Indexes, Russell Investments seeks to understand capital markets and identify investment managers it believes have exceptional capabilities. To achieve these goals, Russell's analysts hold more than 3,000 research meetings each year with investment managers around the world. The cumulative knowledge gained from this unparalleled access to senior-level investment decision makers serves as the foundation for all of Russell's products and services.
About Russell Investments
Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisors and individuals in more than 35 countries. Over the course of its history, Russell's innovations have come to define many of the practices that are standard in the investment world today, and have earned the company a reputation for excellence and leadership. The firm has $137 billion in assets under management (as of 9/30/11).
For more information about how Russell helps to improve financial security for people, visit us at www.russell.com.
Jordan McKerney, 206-505-1858
Natalia Krepak, 718-875-7269
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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 U.S. and longer established non-U.S. markets.
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