- Canadian equities improved this quarter to become most favoured asset class; U.S. Equities remain positive; the outlook for EAFE and Emerging Markets has declined
- Almost 90 percent of Canadian investment managers see headline macro risk as one of the greatest challenges
- Bullish sentiment towards bonds rose slightly, but overall outlook bearish
TORONTO, June 28, 2012 /CNW/ - With Canada's financial markets being buffeted by concerns about Europe's financial situation, Canadian investment managers have become increasingly bullish on Canadian equities as valuations have fallen, according to the latest Russell Investment Manager Outlook, conducted between May 24 and June 4, 2012. Not surprisingly, headline or macro event risk is seen as the greatest challenge facing active managers at this time, according to 86 percent of investment managers polled.
According to the second quarter Investment Manager Outlook 70 percent of investment managers surveyed are bullish on Canadian equities, while only 25 percent are bearish. By comparison, 56 percent were bullish in the first quarter and only 43 percent were bullish a year ago at this time.
"The sell-off in April and May has improved valuations and that has led to increased bullishness in Canadian stocks," said Greg Nott, Chief Investment Officer, Russell Investments Canada Limited. "In addition, despite gaining in the first quarter, Canadian equities lagged their global counterparts in that period, making their relative valuations even more attractive."
Assessing the Canadian market as a whole, 73 percent of investment managers say it is undervalued. That is a big shift from the previous quarter, when only 17 percent of investment managers thought the Canadian market was undervalued.
In terms of asset classes, investors are least bullish on real estate -- only six percent have a favorable outlook versus 56 percent bearish. They are also relatively bearish on Canadian high yield bonds, with only 11 percent of managers holding a favorable outlook on that asset class compared to 29 percent in the first quarter.
Canadian bond bears remain, despite rise in bullish sentiment
On the fixed income side, bullish sentiment has risen slightly, but the overall outlook remains bearish. Bulls rose to 20 percent from 12 percent, while bears slipped from 65 percent to 71 percent.
U.S. equities' sentiment remains positive, but investors more cautious on emerging markets and EAFE
Sentiment is also generally positive on U.S. equities, with 65 percent of investment managers indicating they have a positive outlook for that asset class. However, this is down from 72 percent in the first quarter. By contrast investors have become far more cautious on emerging markets, with only 40 percent bullish and 35 percent bearish on the outlook for that region. "Investors who had expected emerging markets to continue performing better than developed markets may have been disappointed by the Russell Emerging Markets Index's 19 percent decline in 2011," Nott noted.
And with Europe still wrestling with debt woes and political unrest, sentiment towards the EAFE region is unsurprisingly quite bearish. According to the IMO, only 25 percent of investment managers have a positive outlook on EAFE equities, down from 44 percent in the first quarter. Meanwhile 40 percent are bearish on the region, a significant increase from the 11 percent who were bearish in the first quarter.
Investors bullish on energy and industrials; bearish on utilities
Among sectors, investors remain generally bullish on energy and bearish on utilities as they have been for several quarters. However, bullishness on industrials has risen dramatically, with 74 percent of investment managers positive on the outlook for that sector compared to only 33 percent in the first quarter. Bearishness has fallen to 11 percent compared to 20 percent.
"Lower prices for oil and other inputs have investors looking more favourably on the industrials sector, which is dominated by transportation companies," Nott said. "The country's railroads, which are major components of the transportation sector, are strongly influenced by the state of the U.S. economy, which was viewed as gradually improving."
For access to the full Investment Manager Outlook, please visit www.russell.com/ca 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.
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