Emerging markets and high-yield bonds—the riskiest equity and fixed income categories, respectively—have money managers bullish, according to a survey.

Russell Investments’Investment Manager Outlook survey of 300 U.S. large and small cap equity investment managers finds 74% of respondents were bullish on emerging market equities while 66% were bullish on high-yield bonds. Managers also shunned traditional defensive strategies, with bullishness for cash down to 10%—an all-time survey low—and 9% for U.S. Treasuries, a four-year survey low.

“Managers are indicating a much higher level of comfort with risk and appear to be making a rotation from defense to offense,” says Mark Eibel, director, client investment strategies with Russell Investments. “To keep it simple, ‘anything but cash and Treasuries’ appears to be the rule for managers right now.”

In the previous Investment Manager Outlook survey, managers said they were relying on an improving credit situation as the chief indicator of recovery in the financial markets, and demonstrated their belief that a credit market recovery was still some time away. Sixty-seven percent responded that they thought it would take either six months or one year for the credit markets to cease their hindrance of a market recovery.

“There is a healthy sense of wait-and-see balancing out the managers’ embrace of risk and their bullishness for equities nearly across the board,” says Eibel. “Taken together, the manager response seems to say a recovery is probably underway but the ride is still going to be a bumpy one.”

Additional findings
Managers also appear to believe an economic recovery could follow the current market recovery, as bullishness for the materials and processing sector nearly doubled from 33% last quarter to 60%.

“Although a lasting economic recovery is far from certain, the managers who responded to the Russell survey appear to be pointing in that direction,” says Eibel. “The growing enthusiasm for the materials and processing sector reflects a belief that the gears of the economy may be starting to turn.”

The survey saw levels set for bullishness across a range of asset classes and sectors, with six of 13 asset classes and eight of 12 sectors reaching either a new high in manager bullishness or the second highest-ever result. All-time highs include:
• High yield bonds – 66% bullishness
• Emerging market equities – 74% bullishness
• Small cap growth – 57% bullishness
• Other energy – 70% bullishness
• Integrated oils – 61% bullishness, and
• Autos and transportation – 26% bullishness

(06/24/09)

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