Bears come out of hibernation as Canadian investment managers tread carefully

    
    Russell Investment Manager Outlook Highlights
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    -   63% of managers bullish on Canadian equities

    -   Only 33% bullish on EAFE equities

    -   Increase in bullishness towards bonds and cash
    

TORONTO, June 29 /CNW/ - Signs of slower growth, fallout from the Greek government debt crisis, and the Gulf oil spill have put a damper on the outlook for equities in many regions - according to the latest results from the Investment Manager Outlook by Russell Investments Canada Limited (Russell Canada).

"As investment managers scale back their appetite for risk, the relative appeal of bonds and cash have risen from rock-bottom lows to more balanced levels," says Sadiq S. Adatia, chief investment officer of Russell Canada.

"Although a solid majority of investment managers remain bullish toward equity markets, signs of caution have emerged this quarter. There are fewer bulls, more bears, and fewer managers standing in neutral ground. This polarization often goes hand-in-hand with higher volatility - something the market has certainly delivered in recent weeks."

Canadian equities remain attractive

Canada continues to enjoy most-favoured equity market status, with the number of bullish managers declining slightly from 69 percent to 63 percent. The number of bears rose from a sparse nine percent of managers to 19 percent.

"Canada remains attractive to investors as we emerge from the recession in much better shape than many other markets, thanks in part to strong corporate earnings," explains Adatia.

Currently, only one-in-ten investment managers believe the Canadian market is overvalued, while 60 percent see it as fairly valued, and 30 percent consider it undervalued. In terms of what risks might impact Canadian equities in the next 12 months, nearly half of investment managers cited geopolitical activity - everything from oil spills and government debt crises to military conflicts - as the greatest risk facing Canadian stocks. One-in-four managers said rising interest rates were a significant risk. Less than one-fifth named a strong loonie, falling consumer confidence and high commodity prices, and a handful said unemployment and inflation were concerns.

Sentiment for foreign markets decline

Emerging markets saw a dramatic pullback in sentiment, with the number of bullish managers dropping from 72 percent to 58 percent.

"While the long-term prospects for emerging markets remain attractive, slower growth-especially in China - and a general sense of caution among investors mean fewer investment managers are comfortable with the short-term risks," says Adatia.

The number of managers saying they are bullish towards EAFE equities dropped 13 points to 33 percent this quarter.

"In our view, the countries that have recently assisted Greece may soon need that capital to solve their own problems. We see issues mounting for Portugal, Spain, Italy and Ireland, and predict slow growth in this region for the foreseeable future," says Adatia.

As other regions of the world grapple with economic problems, things are looking up for the U.S. market. With a stronger housing market and improving corporate earnings coming down the pipe, bulls rose from 53 percent to 61 percent of managers. However, bears also increased from 15 percent to 29 percent of managers.

Bonds bounce back

Positive sentiment towards Canadian bonds, which had hit an extreme low of just three percent of managers last quarter, rebounded substantially this quarter. Twenty-four percent of investment managers now say they are bullish, and bears fell from 71 percent of managers to 48 percent. Bullishness towards cash also rose, from just nine percent to 14 percent. However, high yield bonds are now in the doldrums, with the proportion of bullish investment managers falling from 24 percent to 14 percent.

Looking Ahead

Adatia understands why a majority of managers are more cautious in light of recent market volatility. However, he continues to believe that investors that have positioned their portfolios for diversification and long term growth will be rewarded.

"Our view is that volatility will remain high in the coming quarter. That said, the world is still moving towards economic recovery with Canada and the U.S. on the right track," says Adatia.

"Current jitters will subside, and we continue to believe that remaining fully invested and properly diversified is the best way to benefit from near-term market pullbacks and maximize gains over the long term."

For access to the full Investment Manager Report and interview with Sadiq Adatia, please visit www.russell.com/ca or call Thien Huynh at 416-640-2529.

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.

About Russell Investments

Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries. Over the course of its history, Russell's innovations have come to define many of the practices that are standard in the investment world today, and have earned the company a reputation for excellence and leadership.

Through a unique combination of wide-ranging and interlinked businesses, Russell delivers financial products, services and advice. A pioneer, Russell began its strategic pension fund consulting business in 1969 and today is trusted by many well-known worldwide institutions for investment advice. The firm has $184.9 billion CDN in assets under management (as of 12/31/09) in its mutual funds, retirement products, and institutional funds, and is well recognized for its depth of research and quality of manager selection. Russell offers a comprehensive range of implementation services that helps institutional clients maximize their assets. The Russell Indexes calculate over 50,000 benchmarks daily covering 65 countries and more than 10,000 securities.

Russell is headquartered in Tacoma, Washington, USA with offices in Amsterdam, Auckland, Chicago, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. Russell Investments Canada Limited is a wholly-owned subsidiary of Frank Russell Company. For more information about how Russell helps to improve financial security for people, visit us at www.russell.com/ca

For further information: Katita Stark, 416-929-9100