83% of investment managers expect S&P/TSX to rise in 2010

    Russell Investment Manager Outlook highlights

    -   71% of managers bullish towards Energy sector

    -   64% bullish on Emerging Markets

    -   Only 6% of managers bullish towards cash

TORONTO, Dec. 14 /CNW/ - It appears the running of the bulls is expected to continue into the New Year. According to the latest Russell Investment Manager Outlook, optimism abounds as 83 percent of investment managers believe the S&P/TSX will experience gains in 2010.

"This confidence is built on a foundation of strong bank earnings, improving economic statistics, rising commodity prices, and a rebounding residential real estate market. Indeed, despite continuing high unemployment numbers, Canada's relative prosperity remains the envy of the world," says Sadiq S. Adatia, chief investment officer of Russell Investments Canada Limited.

As a result of Canada's stable economy, money continues to flow into the Canadian dollar, helping to keep it aloft versus the U.S. dollar. Sixty percent of investment managers surveyed remain bullish towards the loonie, while only 17 percent expect it to soften in the coming months.

Energy and financials remain managers' favourites among S&P/TSX sectors

Energy continues to be the darling of the Canadian market, with 71 percent of managers bullish and only 14 percent bearish. Financial stocks also remain in favour, with 61 percent of managers bullish and 21 percent bearish.

"With the shares of Canadian oil producers priced for roughly $65/barrel, the recent trading range in the area of $75-plus implies continued upside potential for the Energy sector," explains Adatia.

"Sentiment deteriorated slightly since last quarter in the Financials sector, perhaps in reaction to Manulife Financial's dividend cut and equity financing, but bank earnings remain strong and dividends have continued to flow uninterrupted."

Sentiment towards the information technology sector - often considered a proxy for Research in Motion (RIM) - slipped from 63 percent bullish to 57 percent bullish. "This may reflect concerns that competition for RIM's Blackberry product is heating up," says Adatia.

Record-high gold prices continue to prop up sentiment towards the materials sector, which is currently at 54 percent bullish and 32 percent bearish. "We suspect that the materials sector ex-gold would not garner as strong an endorsement from investment managers," says Adatia.

The telecom sector continues to hold appeal, with bulls up from 48 percent to 52 percent, and bears holding steady at 32 percent. "The sector offers solid yields, healthy earnings, and modest valuations - attractive traits for investors seeking a relatively conservative equity play," says Adatia.

"In contrast, utilities, industrials, consumers discretionary, and consumer staples are traditionally considered defensive sectors with solid if unspectacular growth potential. This may explain why bullishness towards all four declined this quarter. In the current rising market environment, investment managers are likely finding more compelling growth opportunities elsewhere."

Adatia also noted that recent disappointing earnings from consumer discretionary stocks (such as Shoppers Drug Mart Inc.) and continued weak performance from consumer staples stocks - one of the worst-performance sectors of the past year - have also contributed to this weaker sentiment.

Managers sour on Canadian small caps

Bullish sentiment towards small cap Canadian equities wilted, with the number of bulls falling from 62 percent of managers to 47 percent in the latest quarter, and bears rising six percentage points to nearly one-third of managers.

"This may reflect the fact that they have already outperformed large caps significantly this year, and that some managers may now be favouring large caps to protect against a potential stumble in the current bull market run," says Adatia.

Appetite for bonds bounces back

Sentiment towards Canadian bonds was revived somewhat this quarter, with 18 percent of managers now bullish versus only 6 percent last quarter. With cash offering near-zero returns, Canadian bonds may offer an attractive middle ground. High-yield bonds, meanwhile, have divided manager opinion: roughly one-third bullish, one-third bearish, and one-third neutral.

Managers bullish towards Emerging Markets

A solid 64 percent of investment managers remain bullish towards emerging market equities this quarter, and bears have fallen from 28 percent to just 15 percent. "China and India continue to be seen as offering strong growth prospects and solid performance potential," explains Adatia.

Bullish sentiment towards U.S. and EAFE equities slipped to 44 percent and 47 percent respectively in the latest quarter.

"Both of these markets have experienced strong upswings, and we suspect that Canadian and emerging market equities may now be seen as offering better growth at this time," says Adatia.

"There is some concern that improving U.S. economic data is more a reflection of government stimulus than bona fide growth. We believe it will take until the first or second quarter of 2010 to gain a clearer picture of the state of the U.S. economy, and it's quite possible that investment managers will re-assess their outlooks for U.S. equities at that time."

Managers avoid cash grab

The majority of investment managers are content with equity market valuations. Fifty-six percent consider stocks to be fairly valued, and 17 percent say it is undervalued. About one-in-four express concern that it is overvalued. Only 6 percent of managers are bullish towards holding cash.

"At Russell, we strongly believe in the market's long-term prospects, and continue to support full participation in the markets," says Adatia.

"We share investment managers' low opinion of holding cash, and strongly recommend that investors enter the market while taking a thoughtful approach to diversification in order to mitigate risk and take advantage of critical opportunities."

For full access to current and past editions of the Russell Investment Manager Outlook, please contact Katita Stark: (416) 416-929-9100.

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

Russell Investments provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. With approximately $187.2 billion CDN in assets under management (as of 9/30/09), 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 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.

SOURCE Russell Investments Canada Limited

For further information: For further information: Katita Stark, (416) 929-9100

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