Cash no longer king: Only 8% of managers bullish about staying on the
sidelines with cash
Russell Investment Manager Outlook Highlights
- 63% of managers bullish on Canadian equities
- Energy sector still seen as most promising with 74% of managers
- Financial services bulls rise again to 70% of managers
- Bullishness towards emerging markets up sharply to 67% of
TORONTO, June 29 /CNW/ - A majority of investment managers see further
upside potential for Canadian equities, despite a rally that has seen
double-digit gains in the S&P/TSX Composite Index so far this year.
A solid 45% consider Canadian equities to be undervalued and only
one-in-five think the market has become overvalued. The investment managers
expressed these views in the latest quarterly Russell Investment Manager
"An increased appetite for risk is a common theme this quarter. The most
notable evidence is the outlook for cash. Not long ago, it was the safe haven
of choice for many managers, with more than one third saying they are bullish
towards the asset class, despite the fact that returns were very low, and had
even dipped temporarily below zero for U.S. treasuries," says Sadiq S. Adatia,
chief investment officer of Russell Investments Canada Limited.
Majority of managers cashing out
According to the Russell survey only 8% of managers say they are still
bullish towards cash, and fully 61% are bearish, indicating that stocks and
bonds are once again seen as offering rewards commensurate with their higher
"At Russell, we believe investors should remain fully invested at all
times, because markets are always more positive than negative over time. Those
who choose to hold cash are, more often than not, leaving money on the table,"
63% of managers bullish on Canadian equities
As the TSX has set successive new highs for the year, investment managers
have remained overwhelmingly bullish towards broad market Canadian equities.
The number of bullish managers increased from 60% to 63% this quarter, while
the number of bears increased four points to just 26%.
The "big three" sectors of the domestic market continue to lead in
positive sentiment. Investment managers remain optimistic about the energy
sector, with 74% calling themselves bullish.
"The bullishness towards energy comes as little surprise, as oil prices
have experienced a steady ascent in recent months, following a period of
constrained supply," explains Adatia.
70% of investment managers say they are bullish towards the financial
services sector, which also follows logic, as Canadian banks have stood out as
the world's strongest in recent quarters, maintaining steady dividends and
respectable earnings throughout the financial crisis.
The outlook for the materials sector also remains upbeat, with 64% of
managers saying they are bullish.
"Excluding gold, this sector was deeply depressed in recent quarters, and
appears to be staging a comeback on the widely-anticipated resumption of
global growth within the next few quarters," says Adatia.
Bullish sentiment towards the consumer staples sector dropped from 46% to
28%, and at the same time, bullish sentiment towards the consumer
discretionary sector rose from 39% to 47%.
"Given the more optimistic economic climate, this could be an indication
that investment managers expect pleasure, rather than simple necessity, to
again become a driver of consumer behaviour," says Adatia.
Telecommunications saw an up-tick in bullish sentiment, from 39% of
managers to 45%. The information technology sector, which is largely a proxy
for Research in Motion, saw an increase in bullishness to 45%, and bearishness
was cut in half to just 13% of managers.
Industrial companies also saw an improvement in outlook, with bears
remaining virtually unchanged at 28%, but bulls increasing to 59% of managers.
The industrial sector is expected to benefit from improving vacation travel,
government infrastructure spending, and higher demand from emerging markets.
54% of managers favour high yield bonds, up from 31% last quarter
Another sign of rising confidence is the preference for high-yield bonds
over Canadian government bonds. Only 21% of managers remain bullish towards
government issues, and 55% are now bearish. However, the number of managers
favouring high-yield bonds rocketed from 31% to 54% of managers, while bears
dropped from 42% to 34%.
Bullishness towards Emerging Market equities jumps from 43% to 67%
Emerging market equities--which posted some of the worst performance
during the financial crisis--are another area where attitudes towards risk
appear to have changed. The number of bullish investment managers shot up from
43% to 67% this quarter, and bears slid from 40% to 31%.
"It is likely that many now believe the hard-hit markets of the
developing world have become oversold," explains Adatia.
"In contrast, the outlook actually dimmed slightly for U.S. and EAFE
stocks this quarter, possibly because other regions--such as Canada and
emerging markets--are seen as offering more attractive prospects."
For EAFE, the number of bullish managers is unchanged at 43 percent, but
bears have climbed from 30% to 35%. For the U.S., bulls are down a few points
to 45%, and bears are up a few points to 29%.
"At Russell, we share investment managers' positive outlook on equities,
and expect to see energy and commodity prices, as well as the Canadian dollar,
continue to trend higher in the coming quarters," says Adatia.
"In addition, we continue to advocate full participation in the markets
combined with 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) 640-2529
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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For further information:
For further information: Thien Huynh, (416) 640-2529; Katita Stark,