Yield of Dreams

Investment Managers: What Double-Dip Recession?

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Investment managers, or at least 79 percent of them, don’t believe we’re headed for a double-dip recession, according to a survey conducted by Russell Investments. Of those that don’t forsee a recession, managers thank strong corporate balance sheets (78 percent) and the Fed’s efforts to keep interest rates low (49 percent), Russell said. Managers also said declining oil prices and U.S. dollar weakness will help.

There has been much debate over whether a double-dip recession is on the horizon. European fund managers were not so optimistic. Retail investors are selling. But Russell’s survey seems to indicate that managers see the current environment as a buying opportunity:

“We have seen a consistent spate of negative economic news that has certainly impacted investors’ confidence in the markets and we continue to see notable volatility. Yet among professional money managers we are seeing a focus on fundamentals such as strong corporate profits that is supporting an overall bullish sentiment, particularly for large cap U.S. corporate stocks,” said Rachel Carroll, client portfolio manager at Russell Investments. “While we believe managers’ low expectations for overall economic growth are realistic, the collective bullish sentiment and their views on market valuations indicate that they see a buying opportunity in the equity markets.”

Debate about the double-dip recession aside, more than half of the managers surveyed (57 percent) say the market is currently undervalued -- more than double the percentage that felt the same in the June 2011 survey (26 percent). Only 10 percent of managers currently believe the market is overvalued, and 32 percent believe it is fairly valued (dropping from 61 percent in June).

Someone else that sees the current environment as a buying opportunity: a trader told BBC that he doesn’t really care how Europe is going to fix the economy and that he goes to sleep at night and dreams of another recession. “Our job is to make money from it.”

Can the retail investor figure out how to make money in a downturn? The independent trader seems to think so: “I think anybody can do that. It isn’t just for some people in the elite.” He recommends hedging strategies and Treasury bonds. But he sees a buying opportunity for all the wrong reasons, and my guess (more than a guess) is not in the same way the advisors from the Russell survey see opportunity.

Also, I don’t know if I would take his word for it, especially with an elusive job title like “independent trade.” That said, you can’t argue with 57 percent of investment managers. I’ll have whatever they’re having.

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Casting a gimlet-eye on asset management issues.

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