Russell Survey: Managers Hopeful for 2010

Nearly 80% of Managers Expect U.S. Equity Markets to Rise; Bullishness for Technology Sector Sets New Survey High at 82%

TACOMA, Wash.–(BUSINESS WIRE)– Even though U.S. equity markets have made remarkable gains since their March lows, professional money managers still see room for growth in the year ahead. Nearly 80 percent of the managers responding to the latest Investment Manager Outlook, a quarterly survey of U.S. investment managers conducted by Russell Investments, expect U.S. equity markets to rise over the 12 months ending December 2010.

“The managers believe U.S. equity markets can continue to move up from here in 2010,” said Mark Eibel, director, Client Investment Strategies at Russell Investments. “The managers are tentatively hopeful that earnings, driven by increased revenues rather than cost-cutting, and economic recovery can become the main drivers for the market. They expect that this positive development combined with continued accommodative monetary and fiscal policy will sustain the equity markets over the next year.”

Forty-two percent of managers expect the markets to increase by 10 percent or more heading into 2010. While this compares favorably to last year’s survey, when 50 percent of managers had similar expectations, the managers’ opinions about valuations of the market paint a different picture. This year only 19 percent of managers see the markets as undervalued, a new survey low, compared to 72 percent of managers surveyed at the same time last year, a survey high by a considerable margin.

“The managers’ enthusiasm for the markets is no longer based on undervaluation, but on the hope that the hand-off from cost-cutting to real economic growth has begun. How real this shift is and how long it lasts remain open questions dependent on macroeconomic factors such as unemployment and housing,” said Eibel. “If the economy continues to heal, many companies could see expanded revenues placed on top of corporate structures that have become very efficient and streamlined. That combination would prove to be a real win-win for the markets.”

Russell’s Investment Manager Outlookis intended to generate a meaningful snapshot of investment manager sentiment each quarter. For the current installment of the survey, Russell collected the opinions of senior-level investment decision-makers at U.S. large- and small-cap equity investment managers, as well as U.S. fixed-income investment managers. Nearly 200 managers participated in this survey.

Additional findings from the Investment Manager Outlook include:

The case for economic recovery seen in switch from small cap to large cap

Manager bullishness for U.S. large-cap growth rose 17 percentage points from last quarter to 72 percent bullishness, ranking this asset ahead of all others in the survey and providing a signal that managers believe the economy may be recovering. U.S. small-cap growth fell three percentage points from last quarter to 54 percent bullishness.

Although less dramatic, the same bias toward large cap surfaced when managers considered value stocks. While manager bullishness for U.S. large-cap value remained relatively unchanged from the last survey (moving from 51 percent to 53 percent), manager bullishness for small-cap value dropped eight percentage points from 52 percent to 44 percent.

“The managers may not be certain that the footing is again firm, but there are indicators to suggest the economy is moving forward,” said Eibel. “The renewed enthusiasm for U.S. large-cap growth underscores that optimistic outlook coupled with a continued belief that the technology sector will be a market leader.”

Technology still king; managers’ other sector preferences raise hopes for economy

Technology ranked as the sector garnering the most manager bullishness for the fourth consecutive quarter, rising four percentage points from its previous all-time high last quarter to 82 percent. After technology, the energy sector and the materials and processing sector received the most manager support, 64 percent and 58 percent respectively. The more defensive sectors, including consumer staples, consumer discretionary and utilities, were at the bottom of the ranking with 40 percent, 38 percent and 17 percent bullishness respectively.

“Energy alongside materials and processing are two sectors that traditionally do well as an economy begins to recover,” said Eibel. “Still, this kind of recovery will be complicated and delicate, and anything that rekindles the fear and pain experienced over the last 18 months could derail market optimism.”

Incredible shrinking enthusiasm for fixed income

Manager bullishness for fixed income continued to fall in this latest iteration of the Investment Manager Outlook. Bullishness for corporate bonds fell from 44 percent in last quarter’s survey to 27 percent, and the positive sentiment for high yield bonds fell from 52 percent to 34 percent. These declines are especially drastic considering manager bullishness was well above 60 percent for the first two quarters of 2009.

“Fixed income has offered truly remarkable returns over the course of this year, but the managers see that window of opportunity closing a bit,” said Eibel. “Managers expect the investment landscape for fixed income to shift back to its traditional levels, where both risk and reward are muted in comparison to equities.”

About 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. Detailed results and analysis from the Investment Manager Outlook are available on http://www.Russell.com/Helping-Advisors/Markets/InvestmentManagerOutlook.asp. For Index data, please visit www.russell.com.

About Russell

Russell Investments is a global investment company with $174 billion in assets under management as of September 30, 2009. Russell serves individual, institutional and advisor clients in more than 40 countries and provides investment solutions including mutual funds, retirement investments, institutional asset management, implementation services and global stock market indexes. Russell is world-renowned for its depth of manager research, quality of manager selection and access to some of the world’s leading investment managers. It helps investors of all sizes 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 is a subsidiary of Northwestern Mutual Life Insurance Company.

Complete Investment Manager Outlook Results Including Disclosure Information.

Russell Investment Group, a Washington, USA corporation, operates through subsidiaries worldwide including Russell Investments. Russell Investment Group is a subsidiary of The Northwestern Mutual Life Insurance Company.

Russell Investments is the owner of the trademarks, service marks and copyrights related to its indexes.

Russell Financial Services, Inc., member FINRA, part of Russell Investments.

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Source: Russell Investment Group