Money managers expect the economy to slow down or
remain flat over the next year, but they don't think the slump will
lead to a recession, according to a new report.
As a result, large-cap growth remains the most
popular asset class among managers, albeit to a lesser degree than last
year, according to Russell Investment Group's Investment Manager
Outlook, a quarterly poll of managers.
"The economic slowdown appears to be strong enough
to dampen inflationary forces, and the managers clearly believe that
the Federal Reserve Board has engineered a soft landing for the U.S.
economy," said Erik Ristuben, Russell's managing director of client
investment strategies.
"Every sign is pointing to an economy in the
mid-stage of an economic cycle, and the markets are preparing for a
sustained period of 'average' economic growth in which stocks will
perform in line with long-term market expectations," he said.
The expectations have lessened the bullishness of managers over the past year, according to the report.
Even though managers still pick large-cap growth as
their favorite assset class, for example, that bullishness has gone
from 80% of managers in fourth quarter 2005 to 50%.
In fact, according to the report, only two asset
classes generated positive sentiment above 50%: large-cap growth and
non-U.S. (developed market) equities, which was supported by 52% of
surveyed managers.
The popularity of large-cap value, meanwhile, dropped 21% from last quarter.
"In the current environment, managers may be putting
more value on the choice of individual stocks than in which sectors
they might be," Ristuben said. "Nevertheless, most managers remain
convinced that it is only a matter of time before large-cap growth
stocks take off."