Professional Money Managers Are Bullish

Monday, April 28, 2008 | 06:54 AM

Baam324b_bm_ma_20080425184416 Barron's does a regular "Big Money poll" with domestic portfolio managers. Their most recent survey is the cover story for this week's mag.

What's the state of the professional fund manager's psyche? Bullish!

Consider these numbers:

50% consider themselves "Bullish (43%) or Very Bullish (7%)"
12% consider themselves "Bearish (12%) or Very Bearish (0%)"
38% consider themselves "Neutral"

Most pros are "looking over the valley" to an economic recovery: 74% believe the US is in a recession, but only 32% believe this will lead to a world wide recession.

As to the state of the stock market, according to the managers, it is cheap: 55% believe it is undervalued, while only 10% think it is overvalued (35% chose fairly valued).

The greatest risks to equities was surprising: It was not, according to the managers, disappointing earnings (10%) or higher interest rates (9%) or a recession (6%) or even hedge funds (6%) -- rather, it was continued credit market dysfunction (56%).

Lastly, 87% plan on being buyers of equities over the next 3 - 6 months; Only 13% said they expect to be sellers. Most are exposed to large cap (64%) versus midcaps (19%) and small caps (15%).

Here's a quick excerpt:

"JUST AS MOST MANAGERS are sanguine about stocks, they're optimistic about the U.S. economy's growth potential later this year.

Like legendary investor Warren Buffett, nearly three-fourths of our respondents think that we're already in a recession, even if the official numbers won't provide confirmation for months. Asked to predict the change in gross domestic product this year and next, the managers offered growth forecasts of 1.16% in 2008 and 2.11% in '09.

Nearly 68% of poll participants are quick to dismiss the notion that a U.S. recession would drag down the rest of the world. "Slowdown from a torrid pace? Yes. Recession? No," quipped one investment pro, while another noted that "the infrastructure build-out around the world should maintain a certain non-recessionary level of growth."

Others don't buy the notion of a neat "decoupling." "The U.S. economy is 27% of global GDP," wrote one manager. "It would be next to impossible for developing economies, which represent another 29% of global GDP, to overcome a slowdown in the U.S. and Europe."

The one thing that would make the survey much more valuable would be the history of the survey results. Plot that against the SPX for a few decades, and you might have a very useful tool for sentiment analysis.


One small caveat -- most survey respondents are liars: 74% claim to be beating the S&P500. An alternative explanation is that primarily the outperformers responded to the survey.


click for larger graphic
Table courtesy of Barron's


Back in the Pool
BARRON'S, APRIL 28, 2008

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Yea, Ok!!!

Investors pull out of mutual funds
By Deborah Brewster in New York
Financial Times
Published: April 27 2008 22:26

All but one of the 25 largest US mutual fund managers saw their long-term assets fall in the first quarter, as returns dived and investors pulled out of funds.

In the worst start to a year for more than a decade, most money managers had retail outflows, and even stalwarts such as American Funds and Vanguard suffered a drop in assets, of 6.6 per cent and 4.3 per cent respectively.

Pimco, the bond manager, was the only one to show a rise in retail assets, according to Financial Research Corporation and industry estimates. Pimco’s Total Return fund had an inflow of $9bn in the three months to March.

The trend is likely to worry economists, because it suggests the credit turmoil is hurting the confidence of mainstream investors. That, in turn, could dampen activity among consumers in the months ahead, since falling investment sentiment is often associated with muted household spending levels.

However, the fall also marks a fresh blow for the financial industry, because mutual fund managers typically make money by charging a percentage of assets – meaning that profits in the industry fall when assets decline.

Last week, a group of publicly traded asset managers announced bleak quarterly results. Affiliated Managers Group, which holds stakes in 26 mutual and hedge fund companies, reported a quarterly profit fall for the first time in five years, with outflows of $8.4bn in the quarter.

Big institutional fund groups – such as AllianceBernstein, a unit of French insurance group Axa – likewise showed asset falls.

One senior industry executive said: “This is the worst I have seen for a long time, the industry-wide outflows, and unfortunately I don’t think it is a short-term situation. The days of domestic [US] equity funds driving profits for us, that could be gone.”

Retail and institutional investors pulled $100bn from US, European and Japanese equity funds during the quarter, according to Strategic Insight.

The trend is accelerating a shift in the money management industry, as investors move away from equity funds, which have been the industry’s profit mainstay, towards either low-margin options such as short-term cash and indexed funds, or high- margin alternative investments such as hedge funds, private equity and hard assets.

Long-term assets do not include money market funds, which have seen big inflows. Several money managers, such as Fidelity, have large money market funds which are offsetting their outflows, although money market funds are low-margin products and do not provide long-term investor loyalty. Fidelity had a drop of long-term assets of close to 10 per cent for the quarter, as investors continued to pull funds from the former market leader despite a lift in performance in its funds.

Posted by: rubberbandman | Apr 28, 2008 7:24:01 AM

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