Sixty-seven percent of managers surveyed were bullish on corporate bonds, and 61% were bullish on high-yield bonds, according to a Russell press release. U.S. large cap growth equities followed at 57% – a 10% decrease from last quarter.
“In this environment of caution and realism, managers are finding opportunity in spreads between high-quality corporate bonds and Treasuries that are at historic levels,” said Erik Ristuben, Russell’s chief investment officer, North America, in the press release. “Managers also see attractiveness in high-yield bonds, which may constitute a very good value compared with a possibly even more volatile equities market, especially for those managers who can discriminate and effectively pick the winners.”
The percentage of bullish managers decreased for all equity asset classes except emerging markets. Manager sentiment for value stocks decreased across all sizes, with bullishness for U.S. large cap value dropping 19%, from 61% to 42%.
While 57% of managers still believe the market to be undervalued, 72% felt the same way in December. Thirty-three percent of managers now believe the market to be fairly valued – up from 20% last quarter.
When asked what they were relying on as an indicator of recovery in the financial markets, the managers pointed to three different variations on the theme of an improving credit situation:
- “Business credit crunch eases” (50%),
- “Credit risk normalizes” (45%), and
- “Housing market stabilizes” (42%).
Additional findings of the survey included:
- Manager bullishness for the financial services sector took a downward turn, falling from 45% to 30%. Bearishness for this same sector increased from 36% to 47%.
- Manager bullishness for health care also fell from 66% to 51%.
- Managers remained steady on the technology sector, keeping their bullishness at 62% and placing it at the top of all equity sectors.
- Manager bullishness for other energy and integrated oils also rose, moving from 38% to 51% and 37% to 42%, respectively.
Results of the Investment Manager Outlook are at www.russell.com/IMO .