Cash rides high in Russell fund manager survey

Andrew Pease

A 10 per cent increase in favourable sentiment to cash was one of the most significant trends to emerge in the September 2006 Russell Investment Manager Outlook (IMO) quarterly survey.

It found that 35 per cent of its 54 surveyed Australia-based managers are now bullish on cash, compared with 25 per cent in the June 2006 quarter and 18 per cent in March 2006.

In line with an overall trend to a “quiet caution” on the markets outlook, the surveyed managers also expressed their least bearish attitude towards bonds since the IMO was launched in June 2005.

Bearish sentiment dropped to 39 per cent during the September 2006 quarter, significantly down from 56 per cent last quarter and 74 per cent in June 2005.

The defensive theme was also evident in shifting manager sentiment towards the traditionally defensive financials (35 per cent) and consumer staples (46 per cent) sectors, and away from sectors linked to commodity prices.

Bearish manager sentiment now exceeds bullish for the first time in the energy and metals/mining-dominated materials sector.

The increased appeal of cash is partly related to the 0.5 per cent increase in yield that resulted from two RBA tightenings this year, according to Russell Investment strategist Andrew Pease.

“But it may also reflect high levels of uncertainty about the direction of asset class returns — illustrated by the unusual combination of upgraded views on equities, bonds and cash,” he said.

The IMO found 57 per cent of managers predict slower domestic growth over the next 12 months, but none were expecting recession.

“In spite of the market correction in May, managers are not concerned about a significant threat to local or global economies,” Pease said.

“They have largely adjusted to the correction, which saw the market fall 10 per cent from its peak, but has since regained some 5 per cent.”

Investor comfort with international equities was evident in the September quarter, with 59 per cent of managers having a bullish 12-month outlook for international equities, while bearish sentiment has dropped to 17 per cent from 24 per cent last quarter.

“After three years of high absolute returns in local markets, investors are comfortable betting on international equities,” Pease said.