Managers Favor Large Company Stocks

by Alan Lavine and Gail Liberman

Despite expected rate hikes from the Fed, rising oil prices, and the transition of power in Iraq, U.S. large company stock investment managers remain positive.

A new quarterly poll from Russell Investment Group, Tacoma, Wa., says more than 90 percent of 2,700 investment managers surveyed believe that U.S. stocks are a bargain--or at least fairly priced.

Those who believe the market is undervalued outnumber those who see it as overvalued by a 3-to-1 ratio, according to the group’s poll, dubbed “Investment Manager Outlook.” In addition, managers are particularly bullish on health care-with 75 percent reporting a positive outlook, versus only 4 percent that are bearish.

Other findings of the survey:  

* Bullish money managers outnumber bearish managers by three to one.

* The managers are optimistic about large company growth stocks. Large company stocks are traded on the New York Stock Exchange. Growth stocks are stocks of companies that are growing earnings faster then the economy, plus inflation, as well as their peers.

* The managers are bearish on bonds. Interest rates are rising and bond prices fall when interest rates rise.  

However, there is almost an even split between bulls and bears about the outlook for undervalued small company stocks—those that are cheap in relation to future earnings. Meanwhile, 42 percent of the managers surveyed are optimistic about small company growth stocks with fast-growing earnings.

When asked about economic sectors, investment managers clearly are most bullish on health care stocks. They also view the technology sector favorably, reflecting "the increasing growth in the economy.”

Other favorites are the oil and energy sectors. Reason: Current oil prices are rising due to worldwide demand as global economies recover.

Overall, managers show a preference for sectors that stand to benefit from the middle leg of an economic recovery--primarily large company cyclically sensitive stocks, such as technology.

The survey shows little enthusiasm for interest-rate sensitive areas of the market, such as utilities and financial institutions.

What about the presidential election and world events?     Money managers are not dramatically concerned about the impact of many of the high-profile world events or the U.S. presidential election.

Be advised. Although this is an optimistic report, the managers could change their minds by the next survey. Tomorrow’s events could influence their thinking. If the types of stocks they favor today perform well, they may take profits before you ever hear from them again.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "Rags To Retirement," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show. Al and Gail’s new book is "Rags To Retirement:  Stories from people who retired well on much less than you think," published by Alpha Books.

More articles by Al and Gail can be found here.