Canadian Investment Managers Seek Safety Closer to Home, according to Latest Russell Investment Manager Outlook

  • 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 recession

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 double-dip recession
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 rising
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 telecom
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 strategist.

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.

About Russell Investments

Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries. The firm has $158 billion in assets under management (as of 06/30/11) in its mutual funds, retirement products, and institutional funds.

Russell Canada was recently named the #1 fastest growing money manager in Benefits Canada's 2010 Top 40 Money Managers Report. For more information about how Russell helps to improve financial security for people, visit us at www.russell.com/ca.

Important Information

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Copyright © Russell Investments 2011. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. 

SOURCE Russell Investments Canada Limited

For further information:

Contact:
Catherine Winchell
Media:
416-640-6899
416-825-2125
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