Survey reveals across-the-board decline in bullishness; 'back to wait-and-see'
Most U.S. money managers are shrugging off the end of the latest round of quantitative easing as a nonevent. Nevertheless, their outlook for both stocks and bonds is not exactly upbeat, according to the latest research from Russell Investments.
A June survey of 119 professional investment managers found that 75% of respondents are not concerned about the June 30 conclusion of QE2. Indeed, the quarterly survey results, which will be publicly released by Russell on Wednesday, showed that 54% of respondents believe that the financial markets already have factored in the end of $600 billion QE2.
Another 21% anticipate no ill effects from the conclusion of QE2, because the economic recovery is self-sustaining.
At the other end of the spectrum, 5% of respondents believe that the end of the easing will cause inflation to spike and cause investors to sell bonds.
Taken in context with the entire survey, there is a good case for believing that the market already has priced in the impact of the end of QE2, according to Rachel Carroll, client portfolio manager at Russell.
“If you look at the level of asset class and sector bullishness, you can definitely see there is some nervousness out there,” she said.
The survey results showed that every U.S. equity and fixed-income asset class experienced a decline in bullishness from the March report.
The biggest drop was with U.S. large-cap-growth stocks, which saw its bullishness measurement fall 10 percentage points to 60%.
While 60% is still solidly in bullish territory, Ms. Carroll pointed out that the decline likely stems from the desire to reduce risk.
“We probably saw results similar to this coming out of the [2008] financial crisis,” she said. “Everything seems so apprehensive because there are so many macroeconomic events, including unemployment, housing, the impact on consumer spending and the potential contagion from the European debt crisis.”
The only asset class categories that didn't decline on the bullishness scale were emerging-markets equities (up eight points to 59%), non-U.S. developed equities (up four points to 53%) and cash (up six points to 13%).
By sector, the investment managers pushed up consumer staples by eight points for a bullishness rating of 40%.
The biggest drops in the sector analysis were energy, which fell 14 points to 55%; financial services, down 14 points to 35%; and technology, which was down nine points to 65% bullish.
“Last quarter [based on the survey findings], it felt like we were moving from recovery to expansion mode, but now it's back to wait-and-see,” Ms. Carroll said. “Manager sentiment has pulled back a bit and you can see that in a defensive sector like consumer staples, which is certainly not a pro-recovery sector.”
In general, the investment managers believe that the U.S. equity markets are more expensive than they were three months ago.
The percentage of managers describing the market as fairly valued fell by 11 points to 62%. The market was seen as overvalued by 13% of respondents, which compares with 5% in March.
The market is still seen as undervalued by 26% of respondents, which is up from 23% in March.
