NTGA Survey Finds Institutional Investment Managers Expect Increasing Volatility Amid Growth

CHICAGO, April 7 /PRNewswire-FirstCall/ -- Institutional investment managers are anticipating increased market volatility and higher interest rates but remain bullish on corporate profits and global economic growth in the near term, according to a quarterly survey conducted by Northern Trust Global Advisors (NTGA).

Despite the concerns, an overall positive outlook in NTGA's first quarter 2010 survey is consistent with the views expressed by managers at the end of 2009, including the perception by nearly half (46 percent) of managers that the U.S. equity market, as measured by the S&P 500 Index, remains undervalued and a solid majority (61 percent) still expecting global growth to accelerate in the next six months.  Select areas of international markets are also seen to be attractive. For example, the majority of managers now believe that the Japanese equity market is undervalued.

"Our first quarter survey showed rising concern about market volatility and interest rates but the majority of managers still expect global growth to accelerate over the near term, which should translate well for companies positioned to benefit from a recovery," said Chris Vella, global director of research for NTGA.

The survey of more than 90 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-March. Major findings from the survey include:

• For the first time since NTGA began its survey in the fourth quarter of 2008, a majority of managers (51 percent) expect market volatility, as measured by the Volatility Index (VIX), to increase over the next six months.  This is a meaningful shift from fourth quarter, where the majority expected volatility to stabilize over the next six months.
• This quarter, managers also provided their views on merger and acquisition activity.  In the first quarter 91 percent of managers stated they expect merger and acquisition activity to increase over the next six months.
• A decreasing number, though still a majority (61 percent), of managers expect global growth to accelerate over the next six months. The percentage of managers who expect global growth levels to remain the same rose to 28 percent, from 22 percent last quarter.  The outlook for corporate earnings is increasingly positive with 87 percent of managers expecting profits to increase in the second quarter of 2010, up from 84 percent in the fourth quarter.
• A growing number of managers are anticipating an increase in interest rates over the next quarter.  About one in three (32 percent) of managers surveyed expect interest rates to rise, compared to one in five (21 percent) last quarter; while 66 percent anticipate no change in that period.
• Managers see the commercial real estate market stabilizing.  In the first quarter, 61 percent of mangers believed the risk of commercial real estate prices falling remained the same compared to last quarter.  In the fourth quarter, 44 percent of managers shared this belief.
• Reflecting managers' views of the market, 46 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. Regarding international markets, 53 percent of managers surveyed believe that Japanese equity markets are undervalued, while 32 percent believe emerging markets are undervalued.
• Global inflation expectations were steady, with 46 percent of managers saying they expect increased inflation in the next six months. The majority of managers (51 percent) predict that global inflation will remain the same.  
• The majority of managers (55 percent) stated that they have had no change in risk aversion and 78 percent made no changes to the concentration of their portfolio.  Similarly, 79 percent of managers are within their normal range of cash holdings.  There was evidence that some managers increased their cash positions this quarter as 11 percent responded they are above their normal cash range, compared to 1 percent last quarter.
• Investment managers cited technology, healthcare, energy, consumer discretionary and industrials as the top five most attractive market segments.  Emerging markets slipped out of the top five, while industrials moved up in the rankings.  

"Despite concerns over increased market volatility, our managers have maintained their conviction and have not changed the concentration of their portfolios," said Kelly Swiatek, NTGA investment analyst. "A number of managers have stated that their portfolios are even more concentrated than last quarter."

For its survey, NTGA polled a select group of respondents, including fixed income and 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 $34 billion under management as of December 31, 2009 for institutional and personal clients. Having investments with more than 200 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 December 31, 2009, Northern Trust had assets under custody of US$3.7 trillion, and assets under investment management of US$627.2 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.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A, incorporated with limited liability in the U.S.

The Northern Trust Company, London Branch (reg. no. BR001960),  Northern Trust Global Investments Limited (reg. no. 03929218) and Northern Trust Global Services Limited (reg. no. 04795756) are authorised and regulated by the Financial Services Authority.

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SOURCE Northern Trust