The riskiest equity category -- emerging markets -- and the riskiest fixed-income category -- high-yield bonds -- were the asset classes that fund managers were most bullish about in the latest Investment Manager Outlook, a quarterly survey of US investment managers conducted by Russell Investments.

Around 74% of fund managers surveyed were bullish on emerging market equities, and 66% were bullish on high-yield bonds. Fund managers turned to high-yield and corporate bonds as well as equities of nearly every style and sector. The fund managers were also extremely negative about defensive investment strategies.

"Managers are indicating a much higher level of comfort with risk and appear to be making a rotation from defence to offence," says Bruce Pflaum, CEO of Russell Investments Asia. "To keep it simple, anything but cash and Treasuries appears to be the rule for managers right now."

In the last survey, released in March 2009, fund managers pointed to an improving credit situation as the chief indicator of recovery in the financial markets. Managers who responded to the current survey think that a credit market recovery is still some way off. Around 67% of the fund managers thought it would take either six months or one year for the credit markets to cease their hindrance of a market recovery.

"There is a healthy sense of wait-and-see balancing out the managers' embrace of risk and their bullishness for equities nearly across the board," says Pflaum. "Taken together, the manager response seems to say that a recovery is probably underway but the ride is still going to be a bumpy one."

Russell Investment's survey takes a snapshot of US fund manager sentiment each quarter. For the latest survey, the fund house collected the opinions of senior-level investment decision-makers at US large- and small-cap equity investment managers as well as US fixed-income investment managers. About 300 managers participated in this survey.

Russell Investments is a global investment company with $136 billion in assets under management as of March 31. The fund house serves individual, institutional and advisor clients in more than 40 countries and provides investment solutions including mutual funds, retirement investments, institutional asset management, implementation services and global stock market indexes.