Rising commodity prices encourage more portfolio managers to take a
bullish stand in latest Russell Investment Manager Outlook
TORONTO, April 7 /CNW/ - Even though the rising cost of gas has drivers
fuming, increasing oil prices have made portfolio managers more bullish on the
Canadian equity market. According to the latest Russell Investment Manager
Outlook, 43% of Canadian investment managers surveyed are bullish towards
domestic equities - a 15% increase in optimism since the fourth quarter of
2007. The attractiveness of commodity stocks played a key role, as 55.8% of
managers are bullish towards the Energy sector - a jump of 13% over last
quarter. The managers expressed these views in the latest quarterly poll
conducted by Russell in late February and March of 2008.
However, 43% of managers surveyed were also bearish on the outlook for
Canadian equities, showing remarkable polarity among investment managers.
"The even number of bulls and bears on Canadian equities may reflect a
general disparity of opinions. Is the worst of the sub-prime crisis over? Is
recession coming to Canada? How will central banks balance demands for more
stimulus while containing inflation? These are the questions currently
dividing market watchers," says Timothy Hicks, Russell Investments Canada's
Chief Investment Officer.
"The split decision could also mean that more managers are willing to get
off the fence with their opinions in regards to where this market is headed."
Investment managers appear to have a stronger consensus on a number of
specific asset classes and sectors within the Canadian market. For example,
bullishness towards small cap stocks increased slightly from 19% to 24%, while
bearishness remained dominant at 56% of survey respondents.
As noted in previous surveys, small cap pessimism may be increasing
because many smaller Canadian companies are in the currency-sensitive
manufacturing sector. Indeed, 35% of investment managers are now bullish
towards the Canadian dollar compared to 23% a quarter ago.
Bullishness towards the gold-heavy Materials sector soared from 38% to
62%, and bears dropped from 45% to 33%. A number of factors appear to be
driving this optimism, including fast-rising gold prices, continuing
deterioration of the US dollar, and a long-held belief that gold is a hedge
against inflation. This belief seems to persist despite the fact that gold has
not actually kept pace with inflation over the past few decades.
Sentiment towards the Financials sector is more in line with the broad
market, with bulls rising from 30% to 42% and bears rising from 35% to 40%. In
other words, opinion is mounting on both sides of the debate over whether
Canadian bank stocks have finally reached bottom, or whether there might be
further downside risk around the corner.
The Information Technology sector, which is dominated by RIM, saw
bullishness fall from 50% to 40%, and bearishness climb from 23% to 39%. This
likely reflects doubts about whether RIM can maintain its rapid growth rate,
as well as a general cooling of sentiment towards the technology sector. Note
the recent steep declines among big names like Apple and Google.
The outlook for Canadian bonds turned bearish this quarter, with 50% of
managers now expressing negative sentiment and only 21% saying they're
bullish.
"This suggests that managers are expecting interest rates to stop falling
or perhaps rise. However, this change in sentiment may also be a response to
worries that aggressive US rate cuts could lead to inflation or even
stagflation south of the border, with subsequent spillover into Canada,"
explains Hicks.
Additional key findings from the Russell Investment Manager Outlook
include:
U.S. Equities
The outlook for the U.S. market continues to weaken. Bullishness declined
from 42% to 33% while bearishness up-ticked slightly to 44%. Despite the
aforementioned aggressive moves by the US Federal Reserve, our survey shows
that Canadian investment managers are now less bullish on US equities than on
any other equity asset class.
Overseas Equities
The outlook for overseas stocks remains dim. EAFE equities have not yet
regained their shine. After a long period as the most-favoured equity sector
among Canadian investment managers, bullishness has slipped a few more points
to 34%, and bearishness has climbed from 23% to 41%. Although the German and
Japanese economies remain relatively steady, European exporters are feeling
the pinch as the Euro continues to appreciate strongly against the US dollar.
Emerging Markets
Meanwhile, bullishness towards emerging market equities fell from 43% to
36%, with bears growing in number from 43% to 51%.
Real Estate
While the outlook for most equity sectors dimmed this quarter, real
estate sentiment virtually faded to black. Almost 70 percent of Canadian
investment managers are bearish on the sector, and a mere six percent rate
themselves as bullish. It's a fair assumption that most real estate worries
remain US-centric, as the Canadian market still has solid fundamentals by most
measures.
For interview requests or comments from Timothy Hicks, please contact
Thien Huynh (416) 640-2529.
About the Russell Investment Manager Outlook
Russell Investments conducted the Russell Investment Manager Outlook
survey between February 28th to March 7, 2008. The survey was sent to
investment managers with a variety of investment focuses. Having a financial
relationship with Russell was not part of the criteria for being included in
the survey.
In total, 42 investment management firms and 59 investment managers from
Canada participated in the survey. The large majority of individual
respondents to the Russell Investment Manager Outlook have senior-level
investment decision responsibilities, and are often portfolio managers. Other
participants included investment strategists, research analysts and others.
The manager research that Russell Investments conducts for investment purposes
is done entirely independent of Russell Investment Manager Outlook, and
responses to the survey are on a purely voluntary basis.
About Russell
Russell Investment Group provides strategic advice, world-class
implementation, state-of-the-art performance benchmarks and a range of
institutional-quality investment products. With more than C$225 billion in
assets under management as of Dec. 31, 2007, Russell Investments serves
individual, institutional and advisor clients in more than 40 countries.
Russell Investments provides access to some of the world's best money
managers. It helps investors put this access to work in corporate defined
benefit and defined contribution plans, and in the life savings of individual
investors.
Founded in 1936, Russell Investments is a subsidiary of Northwestern
Mutual and is headquartered in Tacoma, Wash., with additional offices in New
York, Toronto, London, Paris, Sydney, Singapore, Auckland and Tokyo. Russell
Investments Canada Limited is a wholly-owned subsidiary of Frank Russell
Company. For more information, please go to www.russell.com/ca.
Commissions, trailing commissions, management fees and expenses all may
be associated with mutual fund investments. Please read the prospectus before
investing. Mutual funds are not guaranteed, their values change frequently and
past performance may not be repeated.
Nothing in this publication 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. This is a publication of
Russell Investments Canada Limited and has been prepared solely for
information purposes. It is made available on an "as is" basis. Russell
Investments Canada Limited does not make any warranty or representation
regarding the information.
Russell Investments logo is a trademark of Frank Russell Company.
Copyright 2008 Russell Investments Canada Limited
Date of First Publication: April 7, 2008
For further information: Thien Huynh, (416) 640-2529; Katita Stark,
(416) 929-9100
