Investment Managers Display Moderate “Risk-On” Approach

Ongoing challenges in Europe appear to provide opportunities for active management

SEATTLE–(BUSINESS WIRE)– Results from the latest Investment Manager Outlook (IMO), a quarterly survey conducted by global asset manager Russell Investments, underscore that investment managers currently view the markets as a “risk-on” opportunity, a turnaround from the previous quarter’s IMO where uncertainty around risk prevailed.

This quarter, managers’ bullishness for U.S. large cap growth equities stood at 69% (up from 58 percent bullishness in the December IMO), and on the emerging markets front, there was a 10 percentage point increase in bullishness from last quarter to 66% in the current survey. Across style and cap levels, the latest IMO survey demonstrated managers’ increased bullishness for equities.

“Managers are seeing opportunities to take on moderate risk for what could be attractive return opportunities. In fact, in the latest IMO survey we are seeing that they are more willing to invest in areas where, even six months ago, they were showing nervousness,” said Rachel Carroll, consulting client executive at Russell Investments. “Seeing professional money managers making these dynamic shifts in a relatively short-term window underscores the importance for investors of having multi-asset portfolios that offer the flexibility to take advantage of these potential opportunities.”

Reduced risk aversion and a search for better returns may also be driving the drop in bullish sentiment for corporate bonds and other fixed income asset classes in the latest iteration of the IMO. Manager bullishness for corporate bonds was 32% and U.S. Treasuries was 4%, reflecting a drop of nine and five percentage points, respectively, from last quarter.

As a leader in multi-asset investing, Russell Investments seeks to understand capital markets and identify investment managers it believes have exceptional capabilities. To achieve these goals, Russell’s analysts hold more than 3,000 research meetings each year with investment managers around the world. Based on these conversations, Russell provides a unique perspective through the Investment Manager Outlook, an ongoing survey intended to generate a meaningful snapshot of investment manager sentiment each quarter. For the current installment of the survey, Russell collected the opinions of 201 U.S. senior-level investment decision makers at equity investment management firms as well as at fixed-income investment management firms.

Europe continues to impact portfolio decisions for majority of managers

As a result of the ongoing challenges in Europe, nearly half (46%) of the managers surveyed expect to have less-than-typical exposure over the next 12 months to companies that derive a significant portion of their revenue from Europe. Another 21% plan to have less-than-typical exposure to companies that are highly sensitive to the global economy as a whole.

Specifically, managers indicated that the challenges in Europe would lead them to reduce exposure to the consumer staples (25%), consumer discretionary (24%) and utilities (24%) sectors, and to increase allocations to the technology (41%) and energy (31%) sectors.

“Most managers are anticipating a weak currency and the effects of a moderate recession in Europe, impacting their appetite for sectors such as consumer staples and pushing them to look elsewhere for growth. Sectors such as technology are meeting that need,” said Carroll. “Many managers believe Europe will likely continue to drive market volatility, but this is no time for investors to forget the value of global asset class diversification in helping to reach desired investment outcomes. Even in the face of challenges in a specific region, there is still clearly a place for non-U.S. equities in actively managed portfolios tailored to the appropriate level of risk investors are prepared to take on.”

In the latest survey, nearly a quarter (22%) of managers say they plan to increase their exposure to Europe during the next 12 months due to the buying opportunities presented by the market’s broad selloff during 2011.

“Managers’ take on ongoing economic woes in Europe appears to be more opportunistic than pessimistic. Some professional money managers believe that last year the market was dominated by trading in ‘baskets’ of stocks, so now there are certain companies with unique attributes that may not be fully priced by the market,” said Carroll. “Active managers are seizing these apparent inefficiencies in the current pricing of company-specific factors.”

Managers see opportunities in the technology sector

Technology maintained its position as the most-favored sector for the 13th consecutive quarter, with 81% of managers expressing bullishness for technology in the latest survey, up from 73% in December. According to Russell, manager enthusiasm for the technology sector as it relates to Europe is largely an active management play.

“Technology companies tend to be big exporters and therefore one might expect less enthusiasm for the sector in light of a European recession – but this is where active management can have an edge,” said Carroll. “The best managers are actively seeking out opportunities in specific companies within the sector where they are able to identify strong potential growth prospects.”

Clouds clearing over real estate?

Real estate saw a 12 percentage point jump in bullishness this quarter to 45%. While this figure is still low in comparison to managers’ responses on other asset classes, it represents an all-time survey high for real estate.

According to Carroll, “Optimism around real estate is likely a reflection of the improving fundamentals in that market, particularly in areas such as core commercial real estate. REITs have rebounded from their lows during the financial crisis and are within reach of their all-time highs – this is certainly a positive development as the real estate asset class can deliver useful diversification.”

More about Russell’s Investment Manager Outlook

Prior to the end of each quarter, Russell polls a sample of investment managers to collect top-line opinions about their outlook for the direction of the markets, sectors and asset classes to watch, and trends on the horizon that could impact investment strategy. In addition to the quantitative results, the Investment Manager Outlook provides qualitative analysis and commentary from one of Russell’s senior investment strategists.

More information about the IMO, including a video and a full report of findings, can be found at: http://www.russell.com/US/market_insights/Investment_Manager_Outlook/investment_manager_outlook.asp.

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, Indexes, portfolio implementation and portfolio construction.

Russell has about $141 billion in assets under management (as of 12/31/11) and works with 2,300 institutional clients, more than 500 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 trillion in assets under advisement (as of 6/30/11). It has four decades of experience researching and selecting investment managers and meets annually with more than 3,000 managers around the world. Russell traded $1.5 trillion in 2010 through its implementation services business. The Russell Global Indexes 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, Beijing, Chicago, Dubai, Frankfurt, London, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow us @Russell_News.

Important Notes:

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than U.S. and longer established non-U.S. markets.

Bond investors should carefully consider risks such as interest rate, credit, repurchase and reverse repurchase transaction risks. Greater risk, such as increased volatility, limited liquidity, prepayment, non-payment and increased default risk, is inherent in portfolios that invest in high yield ("junk") bonds or mortgage backed securities, especially mortgage backed securities with exposure to sub-prime mortgages.

Stock/equity investors should carefully consider risks such as market risk when investing. There are no guarantees when it comes to individual stocks. Any stock may go bankrupt, in which case your investment may be worth nothing.

Technology stocks are primarily companies that serve the electronics and computer industries or that manufacture products based on the latest applied science.

The financial services sector consists of companies that provide financial services including banking, finance, life insurance, and securities brokerage, and services companies.

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Russell Investments Jordan McKerney, 206-505-1858
jmckerney@russell.com
or Natalia Krepak, 718-875-7269
nkrepak@neibartgroup.com

Source: Russell Investments