Managers appear confident in the global economy and its ability to sustain the U.S. equity markets in their ascent from the deep lows of the global financial crisis. Eighty-eight (88) percent of the managers responding to the latest Investment Manager Outlook, a quarterly survey of U.S. investment managers conducted by Russell Investments, expect U.S. equity markets to rise over the 12 months ending December 2011. Forty (40) percent expect the markets to increase by 10 percent or more in 2011.
"Although economic growth in the United States has been slow, managers are not overlooking the fact that it has been positive. The fears around a double-dip recession seem to have subsided," said Rachel Carroll, client portfolio manager at Russell Investments. "The market drop that accompanied the global financial crisis was severe. The managers believe the markets are still working their way back and are set to rise in 2011. Their optimistic outlook may also be based on continued improvements in corporate fundamentals as well as further growth opportunities, particularly for large, multinational companies with strong balance sheets."
In the latest survey, majority manager sentiment on market valuation shifted to seeing the markets as fairly valued. Fifty-two (52) percent of managers believe the markets to be fairly valued, compared to September 2010 when 57 percent of managers saw the markets as undervalued. Thirty-eight (38) percent of managers responding to the latest survey believe the markets to be undervalued.
"The managers are looking outside the United States for more robust economic growth. As they consider the year ahead, they believe that the emerging consumer in Asia, and particularly in China, will be a key driving force for the markets to continue moving upward," said Carroll.
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 U.S. senior-level investment decision makers at equity investment management firms as well as at fixed-income investment management firms. More than 200 managers participated in this survey.
Additional findings from the Investment Manager Outlook include:
Manager bullishness for technology increases; consumer discretionary and consumer staples experience a reversal
Managers once again favor the technology sector above all others, marking the eighth survey in a row that technology has held the top spot. Eighty (80) percent of managers are bullish on technology, compared to 69 percent in September 2010. Manager bullishness for the energy sector also rose considerably, from 51 percent in the previous survey to 68 percent.
"Managers' confidence in the energy sector is rebuilding after recent negative impacts from the oil spill in the Gulf of Mexico and its aftermath," said Carroll. "There are many facets to the energy sector that managers across the style spectrum are finding appealing, from crude producers to coal and natural gas."
Interestingly, manager sentiment for the consumer discretionary and consumer staples sectors changed substantially and in opposite directions. Manager bullishness for consumer discretionary rose 17 percentage points from the last survey to 47 percent, while bullishness for consumer staples fell 10 percentage points to 35 percent, making the sector the least favored after utilities (18 percent bullishness).
"Managers typically head to consumer staples and utilities when they are worried, but clearly they are finding these sectors less interesting right now. They see other opportunities that outweigh their need for safety, which implies less concern about the economic outlook and an increased willingness to embrace risk once again," said Carroll.
Bullishness for real estate sees all-time high and U.S. Treasuries ties survey low
Real estate has been among the least-favored asset classes throughout the history of the Investment Manager Outlook survey, but in the latest iteration manager bullishness for real estate reached an all-time high at 31 percent, up 10 percentage points from the last survey. Manager bullishness for U.S. Treasuries fell to 5 percent, tying the all-time survey low set in June 2004.
"Although the manager sentiment appears primarily optimistic for the equity market, there may be some lingering interest in the strong dividend yields offered by REITs relative to other U.S. equities," said Carroll. "Managers have regarded Treasuries as unattractive for some time now, and the impact of quantitative easing has only compounded this opinion."