Professional Money Managers Are Bullish

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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What's been said:

Discussions found on the web:
  1. rubberbandman commented on Apr 28

    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.

  2. VennData commented on Apr 28

    We’re all S&P-beaters now

  3. Andy Tabbo commented on Apr 28

    I’m definitely in the camp that the market is going to see another really large leg down this summer. The key ingredients for that to happen are increased investor optimism, low volatility, and feeling that the “worst is behind us…” You can feel people becoming a little more complacent each passing day.

    1454 is the target for the this S&P500 rally. Pile into puts as we approach that level.


  4. Eric Davis commented on Apr 28

    I don’t know if 1430 by year end is all that bullish.. I’m also a little unsure how they can be all that bullish being 92% bearish or neutral on real estate…. And Most the Favorite stocks being Non-cyclicals… kind of shows a bit of everyone’s favorite phrase “cognitive dissonance”

  5. sailorman commented on Apr 28

    “The U.S. economy is 27% of global GDP,” wrote one manager.
    I had thought it was 35%, but more importantly- what percentage of emerging market GDP is based on US consumer spending?

  6. Philippe commented on Apr 28

    It is quiet reassuring to read affirmative opinions,please take note and names and revisit them through time.
    I did so with this one
    “On March 31, 2008, Standard & Poors said that they expect the operating earnings for the S&P 500 companies to be up 18.3% in 2008. ”

  7. wally commented on Apr 28

    Bulls run in herds.

  8. cinefoz commented on Apr 28

    I’ve beat the S&P this year … I’ve made a profit YTD on my entire book … and I’m not especially bullish at this time. Let’s wait until Wednesday afternoon to see whether Heaven or Hell awaits.

    Finally, a member of the MSM has joined the chorus. The WSJ has published an editorial today that agrees with me. Admittedly, they said it prettier and in more detail. But, since my ego is large enough to have it’s own climate and eco-system, I will assume that my laments have been one motivation for them to join me. Unfortunately, they only asked for a rate pause. I want to see rates rise and I want the statement to make it appear that Godzilla and family has returned.

  9. Patrick (G) commented on Apr 28

    Most pros are “looking over the valley” to an economic recovery

    Quite a few people have a mountain of debt between where they’re at and that valley.

  10. paul griffith commented on Apr 28

    WHAT THIS WORLD NEEDS is a safe, conservative investment that outperforms inflation — never mind taxes!

  11. gunthestops commented on Apr 28

    This may be a little off topic, but just one observation about the current stimulus package of tax rebates. It seems that politicians are neglecting to remind people that the tax rebates are just early tax refunds from your 2008 taxes, there is no free lunch here. Just my incoherent ramblings for this morning.

  12. Donny commented on Apr 28

    I suspect these mangers of money are almost always bullish.

    AND … since I’m not bullish, and believe the markets are ignoring all the turmoil coming down the pipe, I’m the real “contrarian” investor.

  13. larster commented on Apr 28

    I’ve read Barrons for years and have always found this survey useless, as they respondents are all cheerleaders for the business. As for them buying stocks, where else is there opportunity for profit sine the cdo/cds/auctionrate securities/etc have tanked. the have to make aq ton trading for their own account to keep profits anywhere near previous quarters.

  14. stuart commented on Apr 28

    They have to be bullish, their job is to sell to you. Is a car sales ever going to tell you on the lot that today is a bad day to buy a car? BUY BUY BUY!

  15. michael schumacher commented on Apr 28

    beware of ANY banking “executives” using sports analogies to explain any of this. When the collective industry is hurt (because it is set up only for appreciation now) by “down” it’s pretty obvious they want it to be over now and using the sports metaphors speaks to the “audience” it believes will never understand any of it. So they just use “common” language that “you people can understand.

    Of course money managers who’s job it is to generate revenue (i.e commissions)is it any wonder with the dearth of upgrades/downgrades for no apparent reason…like today. The financials downgrade themselves????

    Self-policing sure worked wonders the last time….


  16. trohat commented on Apr 28

    Can anyone tell me what the sample size was on this survey?

  17. trohat commented on Apr 28

    Can anyone tell me what the sample size was on this survey?

  18. HT commented on Apr 28

    As for “decoupling” and the comment in Barron’s about “no-way a global recession”, did anyone catch that South Korea’s GDP clocked in at 0.7%? Hmmm.

  19. Jesse commented on Apr 28

    Over the weekend Jason Goepfert at did the long-term correlation analysis you’re talking about.

  20. Kilgore commented on Apr 28

    87% buyers over the next six months?

    “Do you smell that? Napalm, son. Nothing else in the world smells like that. I love the smell of napalm in the morning.”

  21. bobn commented on Apr 28

    Most pros are “looking over the valley” to an economic recovery

    Thy must have some really good telescopes to see that recovery way over there.

  22. Vermont Trader commented on Apr 28

    Things must be crazy because I actually bought some gold this morning…

  23. Greg Feirman commented on Apr 28

    Dude they need to make it easy to compare the current results with the past! Like you said.

    I looked at the last few but I couldn’t find answers to the “net buyer/seller” question for some of the past one. I think that’s one of the key questions.

  24. ef commented on Apr 28

    Just for grins, over at the survey results are (4/23/2008):
    ………………..current…… avg

    The Barrons survey is, “Describe your investment outlook for 2008”. For portfolio managers doesn’t that depend on the fund’s investment objectives and strategies for achieving those goals, as defined in their fund’s prospectus. Maybe the question should include risk-adjusted outlook ;-)

    Wish they would have other “predict the value of” type measurements. So the next creative, bubble building, “financial invention” is…?

  25. flipper commented on Apr 29

    The interesting thing is mutual fund flows. Last two quaters were investment classic. In December there was record inflow in US equity funds (domestic+ international). In January-February, after the market fell, there was almost record outflow, only matched by 2003 outflow.

    So the small guy is as always, wrong.

    The outflows from mutual funds continue, so it’s likely a bullish signal.

    Fed and the goverment will do anything they can to prop the market untill elections come and then it will all be Democrats problem.

    Never fight agains presidential cycle.

  26. flipper commented on Apr 29

    Also, Barry (i think you that very well, but…) if we want to
    use anything as a sentiment indicator we should normalize the current reading by some historical average.

    So here we should look at the average % of those who are bullish/bearish/neutral for this survey and then make inference. If the participants are on average cheerleaders, i bet they were 100% bullish in 2000-2001 and the current reading may be actually even pessimistic.

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