Fund managers remain upbeat on US markets

By Ross Kelly

Fund managers remain bullish as to the direction US equity markets will take for the remainder of the year and into 2005, despite last week’s anticipated quarter point rate hike by the US Federal Reserve, a new poll has revealed.

Investment Manager Outlook, a new quarterly poll from RussellInvestment Group, shows that 90 per cent of US fund managers believe the US equity market is a bargain, or at least fairly valued.

This optimism comes despite speculation of further rate rises, rising oil prices and the transition of power in Iraq.

“The results of Russell’s first Investment Manager Outlook are a good indication that the last market cycle of the 20th century has finally ended,” Russell Investment Group chief portfolio strategist Randy Lert says.

“After the wild and painful cycle that began with a bubble in 1998, [leading] to an excessive correction through the spring of 2003 and later followed by a rally through the end of last year, we seem to have finally begun a new investing environment.”

Of the 107 US investment management firms polled in the survey, less than 10 per cent believe the US equity market is overvalued, nearly 63 per cent believe it is fairly valued, with 28 per cent stating they thought it was undervalued.

Managers are bullish on large caps, particularly health care stocks, but in light of further rate rises, have little enthusiasm for interest rate sensitive areas of the market such as utilities and financials.

There was some disagreement on the outlook for small caps, with 35 per cent of those surveyed bullish on the sector and 33 per cent bearish, while approximately 80 per cent of managers were bearish on bonds.

Last week, the Federal Reserve lifted US official interest rates to 1.25 per cent from 1 per cent, the first time the Fed has raised rates for four years.