Bullishness for broad-market Canadian stocks continued its steady march upward as Canadian investment manager bullishness crept up across all equity asset classes this quarter, according to the latest Russell Investment Manager Outlook, a quarterly poll of investment managers conducted by Russell Investments.

Across the board, the Canadian equity market saw pronounced increases in positive manager sentiment, as bullishness for the broad market increased 13 percentage points to 48% and bullishness for Canadian small caps increased 22 percentage points to 45%.

“Many investment managers that had been neutral to Canadian equities have moved firmly into the positive camp, while the bears have largely held their ground,” says Tim Hicks, chief investment officer, Russell Investments. “More managers are asserting their status as bulls, at the very same time that the market has become more volatile and turbulent.”

Amidst this bullishness, 52% of managers named decreasing energy prices as the largest risk factor threatening the performance of Canadian equity markets over the next twelve months. This concern fits with a result from last quarter’s Investment Manager Outlook, where nearly one half (47%) of investment managers indicated their belief that the price of oil would be lower at the end of 2007 than it was then, compared to the one quarter of managers expecting a rise in oil prices. The managers also highlighted the valuation of the Canadian market relative to the rest of the world (19%) and geopolitical instability (14%) as risks.

Canadian Investment Manager Outlook is intended to generate a meaningful snapshot of investment manager sentiment each quarter. Russell collected the opinions of a representative sample of senior-level investment decision-makers at Canadian equity and fixed income managers.

Additional key findings include:

Sector Highlights: Telecommunications Replace Financial Services As Manager Favourite

Telecommunications replaced financial services as the sector finding the most manager enthusiasm this quarter. While manager bullishness for financial services fell to 52% from 68%, managers having a positive sentiment towards the telecom sector rose to 66% from 52%. Healthcare, utilities and energy continue to languish with less than one-third of managers expressing a bullish outlook (29%, 27% and 24%, respectively).

“Earnings for financial services companies have been hot for some time, and managers may believe that this sector has peaked,” said Hicks. “Canadian telecoms continue to enjoy strong earnings power in the wireless sector, bolstered by a lack of competition.”

Manager bullishness for EAFE, U.S. and emerging markets equities were all quite strong this quarter. Sixty-four percent of managers were bullish on EAFE stocks, while bearishness dwindled to 12%. Fifty-eight percent of managers were also bullish for U.S. equities, while bears dropped to 14%. Canadian investment manager bullishness towards emerging markets surged 14% in the first quarter to 49%.

“Bullishness for non-Canadian markets continues to be greater than for Canadian equities, as managers appear to favour the risk/reward characteristics of international markets,” said Hicks. “Although emerging markets generally demonstrate more volatility than mature economies, many companies in emerging markets participate in staple industries, and tend to be relatively resilient.”