Most U.S. investment managers expect the dominant value investing style to give way to growth investing in 2006, according to a survey released Wednesday by Russell Investment Group, and bank stocks are seen bullishly in light of the managers' expectation that the Fed will soon stop raising rates.
Of 112 investment managers questioned from Nov. 28 to Dec. 5, 80% said they expect U.S. large-cap growth stocks to grow over the next year, said Russell's quarterly Investment Manager Outlook.
Randy Lert, chief portfolio strategist for the Tacoma subsidiary of Northwestern Mutual Life Insurance Co., pointed out that since Russell began the survey two years ago managers have predicted growth would dominate over value every quarter. "Managers think we are heading back to growth in 2006, but if we had the same conversation in December 2004, you'd have found they thought the same thing about 2005 and it didn't turn out to be true," he said.
Mr. Lert said the markets, dominated by value investing, grew 7% in 2005. He said managers believe more strongly than ever that large-cap growth offers the most compelling opportunity for investors.
"In January 2006 we are basically entering year six of what would be considered a dominant value cycle," Mr. Lert said. "Value has reigned supreme since the bubble burst in 2000. That is a very long time to see that kind of persistent dominance."
Managers responding to the Russell survey said they believe that the Federal Reserve will stop raising short-term rates early next year. Sixty-seven percent believe the Fed will end its rate-hike campaign once the federal funds rate reaches either 4.5% or 4.75% (from the current 4.25%), which could occur when the Fed meets at the end of January or in March. This could help financial services to prosper, Mr. Lert said.
Managers also turned strongly bullish on technology stocks, which tend generally to be growth stocks, and on health-care stocks - another growth sector.
Mr. Lert said the managers' confidence about a resurgence in growth stocks might be due to the Russell 1000 Growth Index's outperforming the Russell 1000 Value Index in the three months through Nov. 30. "Managers believe the inflection point is here," he said.
