Latest Russell Canadian Investment Manager Outlook: US Equities Hit Their Stride as Bonds Lose Steam

• Equities by far the favoured asset class as US Equities most favoured; the outlook for Canadian and emerging markets equities remained positive
  
  
• Almost 90 percent of Canadian investment managers surveyed expect macro economic issues to continue to influence decision-making process
  
  
• Bearish sentiment towards bonds increased to 71 percent from 44

TORONTO, April 9, 2012 /CNW/ - Canadian investment manager sentiment towards equities improved this quarter, with US equities and Canadian small caps leading the charge, and EAFE edging up slightly, according to the latest Russell Investment Manager Outlook, which was conducted from February 23 to March 6, 2012. In fact, better economic data out of the US and movement on a Greek restructuring deal seem to have given investment managers greater confidence.

Nonetheless, almost 90 percent of investment managers surveyed feel that the macro-economic themes, which have had such a strong pull on the market, will continue to exert the same level of influence on their investment decision-making process this year as last.

"Although most managers do consider macro-economic themes as part of their process, we suspect most feel they add more value by focusing on bottom up research and company fundamentals," said Greg Nott, Chief Investment Officer, Russell Investments Canada Limited.

US equities hit their stride and Canadian equities still reasonable
While equity market sentiment was up in general, it was US equities that saw the greatest change, with bulls rising from 50 percent to 72 percent of managers, and bears falling to just 17 percent as improved US economic data continued to emerge. "There is a growing consensus that the US economy is building momentum and will not be dragged down by issues elsewhere in the global economy," added Mr. Nott.

Despite lagging US equity returns in the first quarter, investment managers remain positive about Canadian equities, with 56% of managers bullish, down from 63%. When looking at Canadian equities, most managers feel that while they may not be a bargain, fundamentals and valuations are still reasonable. Seventy five percent of managers see the market as fairly valued, 17 percent of managers feel that the market is undervalued, and only eight percent of managers feel it is overvalued. The view on Canadian equities is much more positive in the small cap sector, where bullish sentiment has doubled over the last quarter to 65 percent. According to Mr. Nott, "Strong returns over the last quarter suggest some investors may be piling into a sector that performed poorly in 2011 but may offer opportunities today."

The outlook for EAFE equities improved six percent to 44 percent of managers, and bears dropped dramatically from 44 percent to just 11 percent. By contrast, the outlook for emerging markets equities declined, with bulls down 10 points to 59 percent and bears up several points to 18 percent.

Cyclical stocks favoured over defensive stocks - but no one is bullish on utilities
Looking at individual sectors of the Canadian equity market, investment managers continue to see the best value in cyclical stocks rather than defensive stocks, suggesting they believe the economy is poised for growth. Interestingly, no investment manager is bullish on utilities, as the number of bears remained high in utilities (67 percent), followed by consumer staples (43 percent). Bullishness rose significantly in information technology (73 percent) and remained strong in materials (53 percent).

Canadian bond bears jump significantly
On the fixed income side, Canadian bond bears increased to 71 percent of managers from 44 percent, with only 12 percent of managers remaining bullish. The sentiment in the high yield space is much more evenly split with bears only slightly outnumbering those in the bullish and neutral camps.

"As we anticipated, government bond yields were expected to rise modestly in the first part of the year on better economic data from the US, and some improvements in the European debt crisis," said Mr. Nott. "While bond yields may move higher, as investors move away from the "flight to safety", we do not expect a bear market in bonds to develop, as headwinds to stronger economic growth remain significant and should keep bond yields relatively constrained."

Mr. Nott suggested that, "The wide-ranging performance characteristics of assets across regions and sectors, brings home the importance of investing across multiple asset classes. Russell is committed to providing Canadians with multi-asset solutions that will allow them to capture short-term opportunities as well as pursue long-term goals with investments in Canada and around the globe."

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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Copyright © Russell Investments Canada Limited [2012]. 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.

About Russell Investments

Russell Investments (Russell) is a global asset manager and one of only a few firms that offer actively managed, multi-asset portfolios and services that include advice, investments and implementation. Working with institutional investors, financial advisors and individuals, Russell's core capabilities extend across capital markets insights, manager research, Indices, portfolio implementation and portfolio construction.

Russell has about C$143 billion in assets under management (as of 12/31/11) and works with 2,400 institutional clients, more than 580 independent distribution partners and advisors, and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.4 trillion in assets under advisement (as of 12/31/11). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded $1.5 trillion in 2011 through its implementation services business. The Russell Global Indices calculate over 50,000 benchmarks daily covering 85 countries and more than 10,000 securities.

Russell is headquartered in Seattle, Washington, USA and has offices in Amsterdam, Auckland, Calgary, Chicago,  Frankfurt, London, Melbourne, Milan, Montreal, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo, Toronto and Vancouver. For more information about how Russell helps to improve financial security for people, visit www.russell.com/ca  or follow us @Russell_News.

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