Canadian investment managers see more prospects for advances in coming months in international equities than in any other asset class, according to the first-ever quarterly Canadian Investment Manager Outlook poll from Russell Investment Group.

For the survey, russell collects the opinions of a representative sample of senior-level investment decision-makers at Canadian equity and fixed income managers.

The survey finds that 64% who responded to the December survey are bullish on non-Canadian equities.

Although they favour international markets, Canadian managers remain positive on the broad Canadian equity market, with the bulls outnumbering the bears by almost a two-to-one margin. This upbeat assessment is corroborated by the view that two-thirds of respondents (67%) believe the market is fairly valued or undervalued, compared with 33% who consider it overvalued.

“Professional money managers believe that market leadership from the financials and materials sectors should be enough to keep the market moving forward, even if valuations soften in energy and utilities, the two sectors that have dominated the market this year,” says Tim Hicks, chief investment officer, Russell Canada. “Managers are bearish on prospects for energy, utilities and industrials, but sentiment is positive or, at worst, neutral for the other seven sectors.”

Managers are also bearish on small cap stocks, which typically struggle in a period of rising interest rates, which is precisely the environment the respondents expect in the first part of 2006.

Canadian managers are downright negative on the prospects for fixed income. Nearly half of respondents expect the U.S. Federal Reserve to continue to push up administered rates to 4.75% or higher in 2006. More than 75% are bearish on the Canadian bond market, implying concerns over inflation pressures and an expectation of continued tightening by the Bank of Canada.

Although managers expect interest rates and bond yields to rise, the equity sector that received the highest number of bullish votes (74%) from the managers was financials. Because it is historically considered an interest- sensitive group one would have expected the opposite reaction.

“Managers appear to be focused on the major constituents of this group – the banks and insurance companies – and the growth potential of their diverse fee-based and capital markets activities,” Hicks says.

A clear outcome of the survey was the bullish outlook for the Canadian dollar. More than half the respondents are positive on the Canadian dollar, with only 7% bearish.