In this latest survey, 77 percent of the managers responding to the survey expect that unemployment will remain at 8 percent or higher at the end of 2011, and 96 percent believe that unemployment will be at least 7 percent. Before December 2008, the last time the unemployment rate was at or above 7 percent was June 1993.1
“High unemployment numbers have effectively stifled consumer confidence and spending. Most managers believe that the economic recovery will continue to be led by business spending rather than consumer spending,” said Ogard. “Still, investment managers are a long way from retreat. What we’re seeing in this latest Investment Manager Outlook is that manager bullishness is trending back towards average survey levels from years past.”
Twenty-eight (28) percent of the managers surveyed believe the market to be undervalued, a steep drop from the 57 percent figure in the March 2009 Investment Manager Outlook but an increase from the survey low of 19 percent seen in December 2009. The number of managers believing the markets to be overvalued declined from 18 percent in December 2009 to 13 percent in this survey.
Russell’s Investment Manager Outlook is 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. More than 180 managers participated in this survey.
Additional findings from the Investment Manager Outlook include:
Sector preferences echo expectations for a business-led recovery
The two sectors most directly linked to consumer sentiment – consumer staples and consumer discretionary – account for two of the four sectors that managers liked the least in this iteration of the survey. From last quarter, manager bullishness for consumer staples and consumer discretionary fell from 40 percent to 38 percent and from 38 percent to 36 percent, respectively. Those sectors more closely linked to business activity and economic growth are where managers are the most bullish, including technology (79 percent), materials and processing (49 percent) and energy (47 percent).
“The manager sector preferences fit squarely with their forecasts for unemployment. Their economic outlook factors in the hope that the antidote to consumer sluggishness can be found with a strong business spending cycle alongside robust corporate earnings and revenues,” said Ogard.
Manager bullishness for health care increased seven percentage points from the December 2009 survey to 63 percent, which represents a 19 percentage point increase from June 2009, when this sector reached a survey low.
Defensive is expensive: cash and U.S. Treasuries continue descent
Manager bullishness for cash fell from 9 percent to 6 percent from the last Investment Manager Outlook and reached a new all-time survey low. Similarly, bullishness for U.S. Treasuries fell from 8 percent to 6 percent, the second-lowest level for this asset class in survey history.
“While the managers have not thrown themselves entirely into riskier investments, it is clear that cash and U.S. Treasuries are still priced too expensively to garner much interest,” said Ogard. “This is especially true for those managers who see prospects for higher returns in other fixed income assets, such as investment grade and high yield corporate bonds.”
