Bullishness for both emerging and developed overseas stock markets fell notably in the latest quarterly survey of U.S. investment managers by Russell Investments.

Fifty-one percent of investors are enthusiastic about emerging markets, down from 71% in December. The portion who like stocks in Europe and other non-U.S. developed markets dropped 9 percentage points to 49%.

Fifty-four percent said that worries about an increase in interest rates in the next 12 months are affecting their investments. Of that group, 30% say that they buying more stocks, another 29% say they are cutting back on U.S. Treasuries and 14% say they are reducing their holdings of all bonds. 

“Managers− where possible− seem to be shortening the duration of their fixed income investments and moving from fixed income to equities,” said Rachel Carroll, client portfolio manager at Russell Investments. 

In the latest survey, 72% of managers say they believe the markets to be fairly valued − an all-time high and a 20 percentage point increase from December. Only 5% see the markets as overvalued, an all-time low.
Technology stocks were most popular.

“Investment managers appear to expect businesses to continue their software upgrades, especially with strong product releases coming to the market, “ Carroll said. “Additionally, the interest in communications and semi-conductors may be bolstered by the emerging dominance of smart phones and tablet technologies.”
Financial services stocks saw an up tick, as the mortgage market stabilizes and banks increase dividends.

At 69%, manager bullishness for the energy sector is up 22 percentage points since March 2010.

Russell collected the opinions of 180 U.S. senior-level investment decision makers at equity investment management firms and fixed-income investment management firms. The survey was fielded before the devastating earthquake and tsunami in Japan, which could further increase demand for energy stocks.