Asset Managers Bullish about U.S. Equity Markets

The latest Investment Manager Outlook from Russell Investments finds that half of the managers surveyed believe the U.S. equity markets are going to rise 10% or more in 2009.

Another 27% of the 206 managers who responded to the survey anticipate the equity markets to rise somewhere up to 10%, Russell said. Almost three-quarters (72%) of managers surveyed believe the market is currently undervalued, considerably more than the 45% from last quarter and more than double the 34% who said so a year ago.

“Managers believe that the market has overshot the damage done by the ongoing recession and is now oversold and undervalued,” said Erik Ristuben, Russell’s chief investment officer, North America, in a press release. “In their opinion, this market has been driven by panic and fear as much as by economic fundamentals.”

The quarterly Investment Manager Outlook revealed record levels of bullishness in four separate asset classes: corporate bonds (60%), U.S. small cap value (54%), U.S. mid cap value (53%), and high-yield bonds (53%).

In addition, managers retained their preference for growth investing versus value, but the gap in attractiveness between growth and value has shrunk considerably, according to the announcement. U.S. large cap growth remains the managers’ favorite asset class at 67%, but manager bullishness for U.S. large cap value jumped 21% points from 40% to 61%. Traditionally, in the Russell Investment Manager Outlook, the gap between these two asset classes is 20 percentage points at a minimum.

Managers were not quite as enthusiastic for non-U.S. equities, Russell found. While bullish sentiment rose nine percentage points from last quarter for emerging markets (37%) and 12 percentage points for developed market equities (36%), they still are well down from the 49% and 61%, respectively, of December 2007.

Bond Appeal

The greater appeal of bonds in Russell’s quarterly Investment Manager Outlook represented a major development.

Manager bullishness for corporate bonds reached an historic high of 60%, up from 37% last quarter and from a survey low of 8% in the first quarter of 2006. The level of bullishness for high-yield bonds also soared to a new high, reaching 53% from 39% last quarter and 28% one year ago.

In addition, according to the Russell press release, despite all that has happened to the financial system, bullishness in the financial services sector grew to 45% from 40% last quarter—well above the 33% mark of one year ago.

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