Investor optimism fades

Investor manager sentiment grew more defensive in the second quarter of 2011 after a positive first quarter, according to Russell Investments’ Investment Manager Outlook.

Managers became more bullish on defensive assets after the growth theme had dominated recent surveys, led by Australian bonds which rose in bullish sentiment from 3 per cent to 19 per cent, the survey of 40 of Russell’s investment managers found.

Managers tipped a slowing in the global recovery, and sentiment towards Australia was better than its global counterparts, the survey found.

Although the number of bulls on Australian shares dropped from 78 per cent to 62 per cent it still remained the preferred asset class, said Greg Liddell, director of investment and consulting services at Russell. Only half of managers saw value in the materials sector, he added.

“Russell views managers’ subdued outlook for this sector as further evidence of markets’ anticipation of slower global growth and somewhat constrained demand going forward for our biggest export sector,” he said.

There was a sharp drop in bullishness towards global equities from 88 per cent to 57 per cent since the previous survey due to perceived uncertainty in global markets, Russell stated.

 Managers also believed the Australian dollar to be overvalued and tipped it to be trading below 90 US cents five years from now, the survey found.

“This indicates managers are factoring in a current level of overvaluation with scenarios such as a potential slowdown in China impacting Australia’s terms of trade, and delay by the Reserve Bank on further rate rises due to weakness in the non mining economy,” Liddell said.