Canadian investment manager sentiment towards equities improved this quarter, with U.S. equities and Canadian small caps leading the charge, and EAFE edging up slightly, according to the latest Russell Investment Manager Outlook, which was conducted from February 23 to March 6.
The outlooks suggest better economic data out of the U.S. and movement on a Greek restructuring deal have given investment managers greater confidence.
Nonetheless, almost 90% of investment managers surveyed feel that the macro-economic themes, which have had such a strong pull on the market, will continue to exert the same level of influence on their investment decision-making process this year as last.
“Although most managers do consider macro-economic themes as part of their process, we suspect most feel they add more value by focusing on bottom up research and company fundamentals,” says Greg Nott, chief investment officer, Russell Investments Canada Ltd.
While equity market sentiment was up in general, it was U.S. equities that saw the greatest change, with bulls rising from 50% to 72% of managers, and bears falling to just 17% as improved U.S. economic data continued to emerge. “There is a growing consensus that the U.S. economy is building momentum and will not be dragged down by issues elsewhere in the global economy,” adds Nott.
Despite lagging U.S. equity returns in the first quarter, investment managers remain positive about Canadian equities, with 56% of managers bullish, down from 63%. The view on Canadian equities is much more positive in the small cap sector, where bullish sentiment has doubled over the last quarter to 65%.
The outlook for EAFE equities improved six percent to 44% of managers, and bears dropped dramatically from 44% to just 11%. By contrast, the outlook for emerging markets equities declined, with bulls down 10 points to 59% and bears up several points to 18%.
Looking at individual sectors of the Canadian equity market, investment managers continue to see the best value in cyclical stocks rather than defensive stocks, suggesting they believe the economy is poised for growth. Interestingly, no investment manager is bullish on utilities, as the number of bears remained high in utilities (67%), followed by consumer staples (43%). Bullishness rose significantly in information technology (73%) and remained strong in materials (53%).
On the fixed income side, Canadian bond bears increased to 71% of managers from 44%, with only 12% of managers remaining bullish. The sentiment in the high yield space is much more evenly split with bears only slightly outnumbering those in the bullish and neutral camps.