Money Managers See 2010 Growth

A Russell news release said nearly 80% of the managers responding expect U.S. equity markets to rise over the next12 months, with 42% of managers expecting the markets to head north by 10% or more. But that enthusiasm apparently has its limits; this year 19% of managers see the markets as undervalued, a new survey low, compared to 72% of managers surveyed at the same time last year, a survey high.

“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, in the news release. “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.”

Large-Cap Love

According to the Russell announcement, the case for economic recovery is now being seen in a switch from small-cap to large-cap offerings. Manager bullishness for U.S. large-cap growth rose 17% from last quarter to 72% bullishness, ranking this asset ahead of all others in the survey and providing a signal that managers believe the economy may be recovering.

Meanwhile, U.S. small-cap growth fell 3% from last quarter to 54% 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% to 53%), manager bullishness for small-cap value dropped 8% from 52% to 44%.

Other results, according to Russell, included:

• Technology ranked as the sector garnering the most manager bullishness for the fourth consecutive quarter, rising 4% from its previous all-time high last quarter to 82%. After technology, the energy sector and the materials and processing sector received the most manager support, at 64% and 58%, respectively.
• Manager bullishness for fixed income continued to fall. Bullishness for corporate bonds fell from 44% in last quarter’s survey to 27%, and the positive sentiment for high yield bonds fell from 52% to 34%. These declines are especially drastic considering manager bullishness was well above 60% 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.”

Russell collected the opinions of senior-level investment decisionmakers at U.S. large- and small-cap equity investment managers, as well as U.S. fixed-income investment managers. Nearly 200 managers participated in the survey.

The report is available here.