Russell Survey: Investment Manager Bullishness for U.S. Large-Cap Growth Soars - Now at Seven-Quarter Highs; Managers Expect Fed to Stop Raising Short-Term Rates Early Next Year

Business Wire, Dec 21, 2005

TACOMA, Wash. -- Eighty percent of U.S. investment managers responding to the latest Investment Manager Outlook, a quarterly poll of investment managers conducted by Russell Investment Group, are bullish on the prospects for U.S. large-cap growth stocks over the next year. The managers' degree of bullishness for large-cap growth stocks not only significantly exceeds that of previous quarters, but is also the highest ever recorded for any asset class or market sector in the two-year history of the quarterly surveys.

"U.S. investment managers are bullish on large-cap growth based on what they know, what they believe and what they expect," said Randy Lert, chief portfolio strategist, Russell Investment Group. "Managers know that the economy has been resilient through some challenging times, they believe that the long-awaited swing from value to growth stocks has begun and still has some ways to go, and they expect the Fed to stop raising rates before short-term rates inflict any significant damage to economic growth."

Managers responding to the Russell survey believe that the Federal Reserve will stop raising short-term rates early next year. Over two-thirds of the surveyed managers (67 percent) believe the Fed will end its current campaign once the federal funds rate reaches either 4.5 or 4.75 percent, which could occur when the Fed next meets at the end of January or later in March.

"The fear that the Fed, under new chairman Ben Bernanke, might damage economic growth in the course of its current tightening cycle has clearly abated," said Lert. "While concerns over the Fed have tended to dampen stocks in recent months, managers now appear ready for the reverse to take place - in the market overall and for large-cap growth in particular."

Russell's Investment Manager Outlook is intended to generate a meaningful snapshot of investment manager sentiment each quarter. For the current installment of the survey, Russell collected the opinions of a representative sample of senior-level investment decision-makers at U.S. large and small cap equity investment managers, as well as U.S. fixed income investment managers. More than 110 managers responded.

Additional findings from the Investment Manager Outlook include:

Technology Revisited: Manager Penchant for Growth Carries Into Market Sectors

Managers have turned strongly bullish on technology stocks this quarter, which tend generally to be growth stocks. As a result, the sector now rivals health care - another growth sector - for the top spot in bullishness. Health care has occupied the lead position for manager bullishness over the life of the survey. A year ago, less than half the managers were bullish on technology stocks, and that number has now grown to 72 percent. Seventy-four percent of managers are bullish on health care.

"Internet stocks have enjoyed a strong run-up recently while traditional technology stocks have fared less well," said Lert. "Managers are voicing their bullishness across all styles of growth - large-cap, mid-cap and small-cap - and this sentiment has clearly found its way into the technology sector."

Financial Services Ready to Go When Interest Rates Stop

Managers have shown an increased preference for financial services, and bullishness for this sector has increased to 40 percent from 26 percent for the last quarter. This increasingly positive sentiment toward investment banks and financial institutions runs in tandem with the expectation for a stabilized interest rate environment.

"Managers believe the economy is growing and expect the Fed tightening cycle to end soon - setting the stage for the financial services sector to prosper," said Lert. "Managers may also be expecting strong performances by investment banks and financial institutions that specialize in regional mortgages."

About Investment Manager Outlook

Prior to the end of each quarter, Russell polls a sample of investment managers to collect their top-line opinions about the direction of the markets, sectors and asset classes to watch, and trends on the horizon that could impact investment strategy. In addition to the quantitative results, the Investment Manager Outlook provides qualitative analysis and commentary from one of Russell's senior investment strategists. Detailed results and analysis from the Investment Manager Outlook are available on Russell.com/IMO.

Russell conducted the current Investment Manager Outlook between November 28 and December 5, 2005. The manager research that Russell conducts for investment purposes is done entirely independent of Investment Manager Outlook, and responses to the survey are on a purely voluntary basis.

About Russell

Russell Investment Group, a global leader in multi-manager investing, provides investment products and services in more than 39 countries. Russell manages more than $148 billion in assets as of September 30, 2005, and advises clients worldwide representing more than $2.3 trillion. Founded in 1936, Russell is a subsidiary of Northwestern Mutual and is headquartered in Tacoma, Wash., with additional offices in New York, Toronto, London, Paris, Sydney, Singapore, Auckland and Tokyo.