Industry remains bullish on stocks

The US funds management industry will continue to favour stocks over bonds, despite concerns of a slowing macro environment according to Russell Investment Group’s third quarter Investment Manager Outlook.

A consensus of US investment managers has found 25 per cent are bullish towards the US equity markets, an increase from 19 per cent registered in the previous quarter.

But this optimism does not extend to equity asset classes according to Russell chief portfolio strategist Randy Lert.

“We believe that deepening concern about the strength of the economic recovery and political events combined with sensitivity to interest rate increases helped to lower manager’ expectations,” Lert says.

Lert says managers are clearly heavily focusing on overall economic and investment conditions rather than on company valuations when analysing potential investments.

Mangers continue to be bearish towards bonds, despite sentiment improving on the previous quarter.

“The bearish outlook is a reflection of current low yields and the fact that the Federal reserve seems to be in the early stages of tightening its cycle,” Lert says.

The Russell data also revealed a narrowing of the gap between growth and value stocks in the third quarter, with growth stocks falling from favour in the third quarter.

For growth stocks, bullish sentiment fell 28 per cent for large cap, 16 per cent for mid cap and 18 per cent for small cap stocks compared to the second quarter findings.

Meanwhile the bullish sentiment for value stocks fell 6 per cent for large cap, 2 per cent for small cap and for mid cap value stocks, sentiment remained stable.

“This decreasing enthusiasm towards growth stocks has erased any discernable style bias and comes at a time when growth stocks are relatively undervalued compared to value stocks,” Lert says.