A majority of investment managers see further upside potential for Canadian equities, despite a rally that's seen double-digit gains in the TSX so far this year, according to the Russell Investment Manager Outlook report.
It found that about 63% of managers are bullish about the Canadian equity market in the second quarter and 45% of managers consider Canadian equities to be undervalued. Only 20% feel the market has become overvalued.
The report said the investment managers are increasing their appetite for risk this quarter. According to the survey, only 8% of managers say they're bullish about holding cash, which suggests that stocks and bonds are becoming attractive again.
Managers said they feel the most bullish about the energy sector (74%), financial services (70%) and materials (64%).
Optimism about the consumer staples sector dropped from 46% to 28% between 2009's first and second quarters, however it rose to 47% from 39% for the consumer discretionary sector .
Other sectors being viewed more optimistically by investment managers include:
telecommunications (to 45% from 39%)
high yield bonds (54% from 31%)
emerging markets (67% from 43%)
The report forecast energy, commodity prices and the Canadian dollar to rise in the coming quarters.