Increasing oil prices have made portfolio managers more bullish on the Canadian equity market.

According to the latest Russell Investment Manager Outlook, 43% of Canadian investment managers surveyed are bullish towards domestic equities, an 15% increase in optimism since the fourth quarter of 2007.

The attractiveness of commodity stocks played a key role, as 55.8% of managers are bullish towards the Energy sector — a jump of 13% over last quarter.

However, 43% of managers surveyed were also bearish on the outlook for Canadian equities, showing remarkable polarity among investment managers.

“The even number of bulls and bears on Canadian equities may reflect a general disparity of opinions,” says Timothy Hicks, Russell Investments Canada’s chief investment officer.

Investment managers appear to have a stronger consensus on a number of specific asset classes and sectors within the Canadian market. For example, bullishness towards small cap stocks increased slightly from 19% to 24%, while bearishness remained dominant at 56% of survey respondents.

As noted in previous surveys, small cap pessimism may be increasing because many smaller Canadian companies are in the currency-sensitive manufacturing sector. Indeed, 35% of investment managers are now bullish towards the Canadian dollar compared to 23% a quarter ago.

Bullishness towards the gold-heavy materials sector soared from 38% to 62%, and bears dropped from 45% to 33%.

Sentiment towards the financials sector is more in line with the broad market, with bulls rising from 30% to 42% and bears rising from 35% to 40%.

The information technology sector, which is dominated by Research in Motion, saw bullishness fall from 50% to 40%, and bearishness climb from 23% to 39%.

The outlook for Canadian bonds turned bearish this quarter, with 50% of managers now expressing negative sentiment and only 21% saying they’re bullish.

“This suggests that managers are expecting interest rates to stop falling or perhaps rise. However, this change in sentiment may also be a response to worries that aggressive U.S. rate cuts could lead to inflation or even stagflation south of the border, with subsequent spillover into Canada,” explains Hicks.


Russell Investments conducted the Russell Investment Manager Outlook survey from February 28 to March 7. The survey was sent to investment managers with a variety of investment focuses.