Russell Investment Manager Outlook March 2008

Russell survey: More than 40% of managers believe markets to be undervalued
Battered but not broken, money managers see glass 'half full'

Tacoma, WA — March 26, 2008 — In a new high for the Investment Manager Outlook, the quarterly survey of investment managers conducted by Russell Investments, 42 percent of money managers believe the markets to be undervalued. That figure is up eight points from 34 percent in the fourth quarter of 2007 and double where it was in the second quarter of 2007.

Though markets have struggled through the first quarter of the year, two-thirds of the managers responding to the survey still believe that U.S. equity performance will be positive in 2008 — only a drop of 10 percentage points from the December 2007 survey. In fact, 26 percent of managers believe market returns will exceed 10 percent by year-end, a drop of only four percentage points from last quarter. Even though such a move would amount to a significant reversal in the Russell 3000® Index (which was down nearly 12 percent when the survey closed on March 7), almost exactly the same number of managers predict this major shift in the markets as expect U.S. equity markets to end 2008 in negative territory.

"Despite being beaten, battered and bowed, investment managers remain unbroken," said Erik Ristuben, Russell's managing director for client investment strategies. "Managers are resilient in their belief that government action will revive the economy, that U.S. equities have room to grow, and that equity performance will reclaim positive territory in 2008."

Russell's Investment Manager Outlook is intended to generate a meaningful snapshot of investment manager sentiment each quarter. For the current installment of the survey, Russell collected the opinions of senior-level investment decision-makers at U.S. large and small-cap equity investment managers, as well as U.S. fixed-income investment managers. More than 250 managers participated in this survey.

Additional findings from the Investment Manager Outlook include:

Commodity sectors on the move
In the latest survey, managers indicated that they saw new buying opportunities related to commodity sectors. Those sectors that benefit most clearly from an increasing demand for commodities — other energy, integrated oils, and materials and processing — saw double-digit increases in manager bullishness from the last survey and reached highs not seen in more than two years. Sixty-two (62) percent of managers responding to the survey were bullish on other energy, an increase of 12 percentage points from last quarter. Fifty-five (55) percent of managers were bullish on integrated oils and 48 percent were bullish on materials and processing — increases of 12 and 14 percentage points respectively.

"The managers see a commodity-driven expansion worldwide as emerging and developed market economies compete for energy inputs and the raw material to build out their infrastructure," said Ristuben. "The same sectors that managers link to commodities are the ones most highly leveraged to economic activity — a fact which underscores the managers' larger belief in a turnaround for the markets and the economy in the second-half of the year."

As they have the past four quarters, health care and technology continued their lock-tight grip on managers' bullish sentiment. While manager bullishness for health care remained relatively stable, moving down from 73 percent to 71 percent this quarter, enthusiasm for technology dipped noticeably and posted the survey's single largest major sector decrease, dropping from 78 percent last quarter to only 63 percent currently.

Fixed income products reach new highs while managers temper their enthusiasm for growth stocks
While their outlook for the equities market remained steady and upbeat, manager bullishness for corporate and high-yield bonds recorded the highest scores in the history of the survey, 37 and 32 percent respectively. Meanwhile, managers reduced their expectations for growth stocks. U.S. large-cap growth, which has consistently topped the list for bullish sentiment over the past 12 quarters, experienced its largest drop since the second quarter of 2006, decreasing from 75 percent last quarter to a current level of 64 percent. Similarly, U.S. mid-cap growth decreased from 60 percent to 49 percent in bullish ratings and U.S. small-cap growth dropped from 47 percent to 36 percent.

"With increased market volatility following the credit crunch eruption last August, managers looking for a safe harbor have been increasing their bullishness toward fixed income products, including cash," said Ristuben. "However, we see a barbell pattern, with as many managers bearish on these products, which may indicate that managers collectively expect spreads to effectively remain unchanged in the near term and that greater opportunity lies with investment grade corporate bonds and equities."

About Investment Manager Outlook

Prior to the end of each quarter, Russell polls a sample of investment managers to collect their top-line opinions about their outlook for the direction of the markets, sectors and asset classes to watch, and trends on the horizon that could impact investment strategy. In addition to the quantitative results, the Investment Manager Outlook provides qualitative analysis and commentary from one of Russell's senior investment strategists. Detailed results and analysis from the Investment Manager Outlook are available on www.russell.com/IMO. For Index data, please visit www.russell.com/indexes/.

About Russell
Russell Investments provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. With more than $228 billion in assets under management as of Dec. 31, 2007, Russell serves individual, institutional and advisor clients in more than 40 countries. Russell provides access to some of the world's best money managers. It helps investors put this access to work in corporate defined benefit and defined contribution plans, and in the life savings of individual investors.

Founded in 1936, Russell is a subsidiary of Northwestern Mutual and is headquartered in Tacoma, Wash., with additional offices in New York, Toronto, London, Paris, Sydney, Singapore, Auckland and Tokyo.

Contacts:
Jennifer Tice, 253-439-1858
Matt Burkhard, 718-875-2122

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

This is not an offer, solicitation, or recommendation to purchase any security or the services of any organization.

Russell 3000® Index: Measures the performance of the 3,000 largest U.S. securities based on total market capitalization. Indexes are unmanaged and cannot be invested in directly.

Large capitalization (large cap) investments involve stocks of companies generally having a market capitalization between $10 billion and $200 billion. The value of securities will rise and fall in response to the activities of the company that issued them, general market conditions and/or economic conditions.

Middle capitalization (middle cap) investments involve stocks of companies generally having a market capitalization between $2 billion and $10 billion and considered more volatile than large cap companies. Mid cap investments are often considered to offer more growth potential than larger caps (but less than small caps) and less risk than small caps (but more than large caps).

Small capitalization (small cap) investments involve stocks of companies with smaller levels of market capitalization (generally less than $2 billion) than larger company stocks (large cap). Small cap investments are subject to considerable price fluctuations and are more volatile than large company stocks. Investors should consider the additional risks involved in small cap investments.

Growth investments focus on stocks of companies whose earnings/profitability are accelerating in the short term or have grown consistently over the long term. Such investments may provide minimal dividends which could otherwise cushion stock prices in a market decline. Stock value may rise and fall significantly based, in part, on investors' perceptions of the company, rather than on fundamental analysis of the stocks. Investors should carefully consider the additional risks involved in growth investments.

Bond investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Greater risk is inherent in portfolios that invest primarily in high yield bonds. They are subject to additional risks, such as limited liquidity and increased volatility.

Health care: Companies involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals, and health care facilities and services.

Technology sector primarily consists of companies that serve the electronics and computer industries or that manufacture products based on the latest applied science.

Other energy: Companies included in this sector are all energy related businesses other than those included in the integrated oils sector. Two distinct groups are: (1) gas distributors and gas pipelines and (2) other energy companies which include mining, producing, servicing, and drilling companies.

Integrated oils: Included in this sector are domestic and international integrated oil companies involved in all parts of the exploration, production and refining process.

Materials and processing sector contains companies that extract or process raw materials. Some industries included in this sector are agriculture, fishing and ranching, building materials, forest products, and steel.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

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This is a publication of Russell Investments. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

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