Managers Hot on Emerging Market, Non-U.S. Equities

The latest Russell Investments quarterly investment manager survey found the hottest asset classes are emerging market equities and non-U.S. (developed market) equities at 67% bullish and 63% bullish, respectively.

A Russell news release said manager optimism for emerging markets fell 7% from the June survey as bullishness for non-U.S. (developed market) increased 10%.

Also, bullishness for corporate bonds fell from 66% at last quarter’s survey to 44% this one. Similarly, the positive sentiment for high-yield bonds fell from 66% to 52%.

“At the end of last year and at the beginning of this one, the managers saw fixed income as a tremendous opportunity that was offering yields at historic levels,” said Mark Eibel, director, Client Investment Strategies, at Russell Investments. “While there has already been a tremendous payoff in fixed income, the managers remain positive and see the asset class as one that is still ripe and not yet spoiled.”

According to Russell, 54% of the surveyed managers also believe the U.S. equity markets to be fairly valued reflecting the significant market move since early March, while the remaining managers are split nearly evenly between considering the markets to be undervalued or overvalued at 24% and 22%, respectively.

“The highly bullish expectations that managers had earlier this year have been tempered by the strong showing from equities and fixed income as well as a ‘wait and see’ approach to the level of economic growth that likely began sometime in third quarter,” said Eibel. “The managers that believe the market is fairly or overvalued have effectively pressed the pause button, waiting to get a clearer reading on the consumer, housing and unemployment numbers.”

Manager concern over the strength of the economic recovery reflected itself in a decline in bullishness for several sectors that go hand-in-hand with economic growth. The three sectors that fell the most in this quarter’s manager survey were two sub-sectors of energy (integrated oils and other energy) and materials and processing.

More than 200 managers participated in the survey. The report is available here.