CHICAGO, Jan. 12 /PRNewswire-FirstCall/ -- Institutional investment managers expect continued growth in the global economy and corporate earnings in the near term, combined with stability in both interest rates and the housing market, according to a quarterly survey conducted by Northern Trust Global Advisors (NTGA).
The optimistic outlook in NTGA's fourth quarter 2009 survey matches the views expressed by managers at the end of the third quarter 2009, including the perception by nearly half (45 percent) of managers that the U.S. equity market, as measured by the S&P 500 Index, remains undervalued even after a sharp increase through much of 2009.
"Our fourth quarter survey showed an overall stabilization of optimism regarding both the market and global economic conditions," said Chris Vella, global director of research for NTGA. "Managers have some concerns regarding inflation and the impact of a withdrawal of economic and monetary stimulus. These issues are being watched closely by managers, but don't appear to pose an immediate threat to market stability."
The survey of more than 100 institutional managers was conducted by NTGA, the multi-manager arm of Northern Trust Corp. Respondents, all of whom participate in NTGA's external manager platform, were polled in mid December. Major findings from the survey include:
- While 76 percent of managers expect global growth to accelerate over the next six months, that number is down from 84 percent in the prior quarter. Meanwhile, the segment of managers who expect global growth levels to remain the same in that time period rose to 22 percent, up from 16 percent in third quarter 2009.
- The outlook for corporate earnings remains positive with 84 percent of managers expecting profits to increase in the first quarter of 2010. That is little changed from last quarter's survey. Interest rate expectations were also largely unchanged, with 21 percent of managers expecting an increase in the next three months and 77 percent anticipating no change in that period.
- Managers also see the housing market stabilizing: 61 percent of managers anticipate an end to home value declines in the next six months. That number reached its highest point since the inception of the NTGA survey in the third quarter of 2008.
- Reflecting future performance potential, 45 percent of managers believe the S&P 500 Index is undervalued – more than double the number (20 percent) of those who believe the market is overvalued. Thirty-five percent see the S&P 500 as appropriately valued.
- Global inflation expectations rose slightly, with 45 percent of managers saying they expect increased inflation in the next six months, up from 43 percent with that view in the third quarter. The majority of managers (52 percent) predict that global inflation will remain the same for the first half of 2010.
- Given the market and economic outlook, managers appear to be holding steady in their investment strategy. The majority of managers (56 percent) stated that they have had no change in risk aversion and 86 percent of managers are within their normal range of cash holdings. There was some evidence that managers have further decreased cash positions this quarter with 13 percent at or under their minimum cash holdings, compared to 10 percent in that position in the prior quarter.
- Investment managers cited technology, healthcare, energy, emerging markets and consumer discretionary as the top five most attractive market segments. Emerging markets made its first appearance on the list this quarter, while materials and industrials fell out of the top five.
- This quarter, managers also provided their views of Japanese and emerging market equities. While a near-majority (48 percent) views the Japanese equity market as appropriately valued, the remaining 37 percent of managers believe that market is undervalued. There was greater dispersion of responses regarding emerging markets: 38 percent of managers believe emerging market equities are overvalued, while 30 percent believe these markets are undervalued.
"Emerging markets is an area of particular interest for our managers and is now considered one of top five most attractive market segments, according to survey respondents," said Kelly Swiatek, NTGA investment analyst. "Managers are especially drawn to the strong growth potential of companies in these developing economies."
For its survey, NTGA polled a select group of respondents, including fixed income and long-only equity managers across value and growth styles, with a bias toward fundamental, bottom-up stock picking strategies. The survey is conducted quarterly so that NTGA and participating managers can examine trends in attitudes and allocations.
NTGA is a leading provider of multi-manager investment solutions, with $33 billion under management for institutional and personal clients. Having investments with more than 250 external managers worldwide, NTGA solutions range from retail mutual funds and alternative asset classes to Emerging Manager programs and total investment program management for institutions and affluent individuals and families.
Northern Trust Global Investments (NTGI) is the multi-asset class investment management business of Northern Trust Corporation. NTGI comprises Northern Trust Investments, N.A., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment advisor division of The Northern Trust Company and Northern Trust Global Advisors, Inc. and its subsidiaries.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2009, Northern Trust had assets under custody of US$3.6 trillion, and assets under investment management of US$610.5 billion. For 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com.
SOURCE Northern Trust