Investment Managers Favour Shifts from U.S. to Canadian Equities
Equities continue to be strongly preferred over bonds and cash
73% of Investment Managers do not believe U.S. is entering double-dip
TORONTO, Sept. 28, 2011 /CNW/ - Investment Manager sentiment towards
U.S. and global markets cooled this quarter, while sentiment towards the Canadian market rose sharply, with
managers warming to traditionally defensive sectors, according to the
latest Russell Investment Manager Outlook, which was conducted from August 30th till September 9th, 2011.
"This year, it seems U.S. equity sentiment has had an inverse
relationship with Canadian equity sentiment," said Greg Nott, Chief
Investment Officer of Russell Investment Canada Limited. "Earlier this
year we saw a hot Canadian market, with a subdued U.S. market. In the
second quarter, with Canadian stocks at lofty valuations, Canadian
sentiment fell abruptly, as we saw bullishness towards the U.S. rise to
62 percent of managers. However, in this latest quarter, Canadian
stocks are back in favour as the number of managers bullish towards
U.S. equities has fallen 15 percent to 47 percent."
The survey found that bullishness towards broad market Canadian equities
rose sharply from 43 percent to 57 percent of managers in the third
quarter, while bearish managers held steady at 20 percent. "This change
in sentiment may be a matter of Canadian managers preferring the safety
of home as market volatility increases," said Nott.
Sentiment towards EAFE stocks also fell this quarter, with just
one-in-three managers now bullish and 43 percent bearish. "This
reflects ongoing fears in the region, negative reaction to the recent
equity market sell-off, and a fairly bleak prognosis for European
economies," added Nott. "We at Russell believe the situation in Europe
may get worse before it gets better, and further deterioration of
markets may be necessary before policymakers take the action required
to steady the economy and create the conditions for recovery."
Equities strongly favoured over bonds and cash.
This quarter's survey also found that despite the rocky nature of equity
markets, they are still the place most investment managers want to be.
Bullishness towards cash is at just 23 percent, while bearishness is at
40 percent. Canadian bonds are even further out of favour, with 20
percent of managers bullish and 67 percent bearish. High yield bonds
also didn't fare much better, according to managers surveyed, with
bulls at 28 percent and bears at 45 percent.
"This reflects not only the low current yields, but also the belief that
we are not heading for another recession," said Nott. "If that is the
view, then interest rates have nowhere to go but up, and bonds
ultimately have nowhere to go but down."
A majority of investment managers do not believe the U.S. is entering a
When asked if they believe the U.S. is heading for a double-dip
recession, 73 percent of investment managers said no. When asked to
specify which factors support their viewpoint, 77 percent said they see
slow, albeit positive growth sustaining the economy; 73 percent pointed
to strong corporate balance sheets and profit levels; nearly two-thirds
mentioned the Federal Reserve's pledge to keep interest rates low until
at least mid-2013; and, approximately one third cited US dollar
weakness and declining oil prices.
Individual sectors of the Canadian market still bullish, but bears
Despite a declining oil price, energy remains the most favoured sector
of the market. Energy bulls fell slightly to 61 percent, while bears
nearly doubled from 16 percent to 29 percent. As a result of the
volatility in gold prices over the summer, sentiment in the
gold-dominated materials sector has been muted, with 43 percent bullish
and 36 percent bearish. By contrast, the financial services sector
reveals a divergent viewpoint, with 46 percent bullish and 36 percent
bearish. "Despite solid bank earnings and dividends, a more bearish
view of banks globally may be holding sentiment back," suggested Nott.
Improving sentiment for defensive sectors such as consumer staples and
In today's less certain environment, managers surveyed were bullish on a
number of traditionally defensive sectors such as consumer staples,
telecommunications and even utilities, which likely reflect a desire to
own companies with steady, predictable earnings and cash flow that can
provide a buffer against the prospect of continued market volatility.
"At Russell, we share many of the same concerns as the investment
managers surveyed, but firmly believe we are on track for a modest
recovery without a double-dip recession. Between continued
accommodative monetary policy and increasing strength of corporate
America, we expect slow, but positive growth ahead," added Nott.
For access to the full Investment Manager Outlook, please visit http://www.russell.com/ca/education_centre/article_library/market_analysis/imo.as or call Catherine Winchell at 416-640-6899.
About the Russell Investment Manager Outlook
As creators of the Russell indexes and one of the few firms that
researches thousands of investment manager products worldwide, Russell
Investments has extraordinary access to senior-level Canadian
investment decision-makers. Prior to the end of each quarter, Russell
surveys a sample of those investment managers to collect their top-line
opinions about the direction of the markets, sectors/styles to watch,
and trends on the horizon that could impact investment strategy.
The result of this survey is the Russell Investment Manager Outlook.
Three of the four questions posed to investment managers are repeated
each quarter, so that results can be measured over time. The poll also
includes one topical question that changes each quarter. In addition to
providing quantitative results, Russell reviews the data collected each
quarter, and provides a qualitative analysis from a senior investment
The Russell Investment Manager Outlook is completed and distributed at
the end of each quarter. This report includes responses from investment
managers with a variety of investment focuses. The manager research
that Russell conducts for investment purposes is done entirely
independent of the Russell Investment Manager Outlook, and responses to
the survey are on a purely voluntary basis.
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