Russell Investment Manager Outlook Highlights
- 60% of managers are bullish on Canadian stocks
- Over 75% of managers expect gains in Canadian energy sector
- Two-thirds of managers cite stability of U.S. real estate as top
market indicator for recovery of financial markets
TORONTO, April 1 /CNW/ - Even as equity markets have yet to produce a
sustained rally in the first few months of 2009, Canadian investment managers
have become increasingly bullish.
According to the latest quarterly Russell Investment Manager Outlook
survey, only one-in-ten managers believe the Canadian market is overvalued,
and 70% say stocks are undervalued, with the energy, materials, and financial
services sectors offering the most attractive prospects.
"Except for emerging markets, Canadian equities were the worst-performing
asset class in the final quarter of 2008. This decline was led by sharp
pullbacks in energy, materials, and financials. Given the bargain-basement
valuations that resulted, it's fitting that a solid 60% say they are now
bullish on Canadian equities," says Sadiq S. Adatia, chief investment officer
of Russell Investments Canada Limited.
Canadian managers bullish on energy, materials, and financials sectors
In regards to the outlook for S&P/TSX sector performance, 76% of the
managers surveyed are bullish towards the energy sector, and only 15% see more
"Oil prices plunged in the second half of 2008 as demand softened and
concerns grew about a build-up of excess inventory. Energy companies slashed
production, and now the pendulum has swung the other way. Oil trades well
below the price at which most producers are profitable, and any up-tick in
demand could lead to supply pressure and higher share prices," explains
"A similar story exists in the materials sector. Aside from gold,
inventories of commodities are depleted and production has slowed or stopped.
Past concerns about inventory should dissolve rapidly at the first sign of
stronger demand, with positive implications for the Canadian market."
As a result, bullishness towards the materials sector is up from 44% to
58%, and bears have been cut in half to only 21%.
Bullish sentiment towards the financial services sector has jumped to 61%
of investment managers, with less than one-in-five saying they are bearish.
Canadian banks have continued to weather the economic storm, recently
announcing solid earnings and maintaining their long streak of reliable
Meanwhile, bullish sentiment towards the telecom sector has declined
sharply from 52% to 39%.
"Although telecoms provide dividends that are attractive in choppy
markets, investment managers may now be drawn to more growth-oriented
sectors," says Adatia.
"A similar calculus is likely behind the drop in bullishness towards
utilities, from 48% to 24%."
Managers peg stability in U.S. housing market as key to financial market
Canadian bonds have fallen out of favour, with the number of bears rising
from 35% to 49%, and bulls slipping from 38% to just 27%. Bonds outperformed
equities by roughly 40% in 2008 - a premium that seems unlikely to continue.
"Today, very conservative investors are more likely to choose cash, and
those seeking positive returns see more opportunity in equities. At Russell,
we believe that many investors currently parked in cash are waiting for the
right indicator before reentering equity markets. We asked investment managers
to identify which indicator they are most relying on to gauge a recovery in
financial markets," says Adatia.
"Almost two-thirds named stability in the U.S. housing market. The
remaining responses were spread out among a wide range of indicators,
including an improved consumer outlook, a narrowing of the spread between
Treasuries and corporate bonds, stronger commodity prices, and further
government intervention or stimulus."
Optimism weakens for foreign equities
The outlook for U.S. equities weakened this quarter, with the number of
bullish managers slipping from 60% to 51%. Bears, however, remained unchanged
at 24%, indicating that some former bulls have simply moved to a neutral
outlook. The dip in bulls may indicate that other equity markets, such as
Canada, have simply become more attractive on a relative basis.
"In terms of the U.S. market, we are buoyed by the U.S. government and
U.S. Federal Reserve's aggressive actions, as well as the write-downs taken by
many U.S. firms, a notable increase in the nation's savings rate, and slow but
certain signs of stability in the real estate market. Taking these factors
together, we expected to see U.S. bullishness increase," says Adatia.
Sentiment towards overseas equities slipped this quarter, with bulls
declining from 50% of investment managers to 43%, and bears increasing
slightly to 30%. As with the U.S., it appears that some bulls have moved into
"At Russell, we share an optimistic outlook on equity markets. We remain
fully invested, and believe investors should remain positioned to participate
in an equity market rebound that may occur in swift fashion," says Adatia.
"We continue to advocate a thoughtful approach to diversification in
order to mitigate risks and maintain exposure to opportunities."
For full access to current and past editions of the Russell Investment
Manager Outlook, please contact Thien Huynh (416) 992-2766
About the Russell Investment Manager Outlook
As creators of the Russell indexes and the only firm that researches more
than 4,500 investment manager products, 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
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.
Russell Investments provides strategic advice, world-class
implementation, state-of-the-art performance benchmarks and a range of
institutional-quality investment products. With nearly US$150 billion in
assets under management (as of Dec. 31, 2008), Russell serves individual,
institutional and advisor clients in more than 40 countries. Russell 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 Life Insurance Company and headquartered in Tacoma, Wash. Russell has
principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New
York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto.
Russell Investments Canada Limited is a wholly-owned subsidiary of Frank
Russell Company. For more information, please go to www.russell.com/ca.
For further information:
For further information: Thien Huynh, (416) 992-2766, Katita Stark,
(416) 929-9100, www.russell.com/ca