One-Third of Asset Managers See Beaten-Down Stocks as Buying Opportunity

More than one-third of asset managers, undeterred by the credit crisis, believe that U.S. stocks are undervalued and, therefore, present a buying opportunity, according to a survey of 291 managers conducted by Russell Investments, The Wall Street Journal reports. That’s up slightly from 28% who thought so in the third-quarter “Investment Management Outlook Survey.”

More than three-quarters believe the stock market will increase in 2008, and 30% believe the numbers will come in at more than 10%. That’s down from 86% who said in the third quarter of 2006 that they thought the market would rise in 2007.

One of the managers who responded to the survey, Art Nunes, part of the investment team of the IMS Strategic Allocation fund, thinks stocks could even top out at 20% in 2008. “Looking into 2008, I’m even more bullish than at the beginning of this year because the dark clouds hanging over our heads are starting to clear,” he said.

Many of the managers surveyed said they are leading toward growth stocks that can deliver steady returns, particularly large-cap growth stocks. Three quarters said they will favor this investment class in the coming year, up from 69% who said so last quarter. Only 31% are optimistic about large-cap value, down from 38% in the third quarter.

Growth sectors that they are the most bullish on include technology and healthcare.

Their outlook for emerging markets, despite the sector’s tremendous gains over the past few years, has dimmed somewhat, with more than 60% saying they prefer developed international markets, up from 57% three months ago. The reason is many believe the run may be over for emerging markets and that they might be more susceptible to an economic slowdown in the U.S. than other international markets.

Surprisingly, 27% are bullish on high-yield bonds, up from 21% in the previous quarter, but that’s because the spread between Treasuries and junk bonds has widened.

“There’s a lot more opportunity to buy high yield at cheap prices today than there was at the beginning of the year,” Nunes said.

In addition, with the Federal Reserve cutting interest rates, more money managers are interested in putting their money to work rather than parking it in cash; roughly one-quarter like cash, down from one-third in the previous survey.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.