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Northern Trust Survey: Investment Managers Stay Course Despite Concern over Federal Budget Gridlock

Despite concerns over the impending fiscal cliff deadline, institutional investment managers surveyed in mid-December were largely staying the course and making few changes in their portfolios, according to a quarterly survey by Northern Trust.

Chicago, January 14, 2013 —

Despite concerns over the impending fiscal cliff deadline, institutional investment managers surveyed in mid-December were largely staying the course and making few changes in their portfolios, according to a quarterly survey by Northern Trust. 

As the deadline approached on action by the U.S. Congress and President Obama to avert tax hikes and spending cuts, 84 percent of those surveyed feared that failure to avoid the fiscal cliff would have a negative impact on financial markets. Yet less than a quarter of the money managers (22 percent) surveyed thought it was likely that the federal government would not take action before January 1, 2013. Three-quarters made no change to portfolio concentration and 81 percent held their normal range of cash as the deadline approached, the survey showed.

Managers taking a wait-and-see approach to the fiscal cliff negotiations were buoyed by positive expectations for key economic indicators. The survey of approximately 100 institutional managers conducted by Northern Trust Multi-Manager Investments showed a meaningful increase in positive views: 82 percent of managers expect U.S. housing prices to increase over the next six months, up from 69 percent in the third quarter and 33 percent in the second quarter. Investment managers were also positive regarding the outlook for employment. For the second consecutive quarter, a large majority expects job growth will remain stable or accelerate over the next six months.

"Manager sentiment regarding the housing market and job growth continued to improve in this quarter's survey," said Chris Vella, Chief Investment Officer for Northern Trust Multi-Manager Investments. "The share of managers with expectations for improving home prices reached its highest point since we began the survey in the third quarter of 2008. And although managers listed the fiscal cliff and the European debt crisis as key concerns, they remained generally bullish on equities."

Along with these positive economic expectations, the survey showed a growing divergence in managers' views on U.S. economic growth and corporate earnings. One-third of managers surveyed expect U.S. GDP growth to accelerate over the next six months, up from 25 percent with that view in the third quarter. The share of those who expect GDP to decelerate was also up, to 21 percent from 14 percent in the prior quarter, while the group who expect stable GDP growth shrank to 46 percent, from 62 percent. Investment managers' expectations for corporate earnings growth are also mixed; 32 percent think corporate earnings will grow in the first quarter of 2013, while the same percentage believes earnings will decline.

"This is the first time since the survey's inception that managers have been split on their outlook for earnings," said Kelly Finegan, vice president, Northern Trust Multi-Manager Investments, who oversees the survey. "The economic uncertainty has resulted in an equal number of managers believing corporate earnings will grow and decline in the next quarter."

Other details from the fourth quarter survey include:

  • 89 percent anticipate that Congress will raise the debt ceiling as needed this year, but 54 percent see risk for additional downgrades to the U.S. credit rating, as occurred in 2011 as Congress and the President tangled over a debt ceiling increase.

  • 55 percent expect market volatility to increase in the next six months.

  • 50 percent of managers believe U.S. equities are undervalued, while 57 percent see upside in emerging market equities.

  • On a sector basis, managers are most bullish on information technology, health care and industrials.

Northern Trust Multi-Manager Investments is the manager of managers business of Northern Trust Corp. For its survey, Northern Trust polls investment firms that participate in its multi-manager investment programs and funds. The select group of respondents includes 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 Northern Trust and participating managers can examine trends in attitudes and allocations.

Northern Trust is a leading provider of multi-manager investment solutions, with more than $37.3 billion under management as of September 30, 2012, for institutional and personal clients. Northern Trust invests with more than 200 external managers worldwide, offering personal and institutional solutions that include retail mutual funds, alternative asset classes, emerging manager programs and total investment program management.

Asset Management at Northern Trust begins with listening and leads to answers beyond the expected for our clients. The multi-asset class investment management business is comprised of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment advisor division of The Northern Trust Company and The Northern Trust Company of Connecticut and its subsidiaries which offer investment products and services to personal and institutional markets. 

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, 2012, Northern Trust had assets under custody of US$4.76 trillion, and assets under investment management of US$747.9billion. For more than 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 or follow us on Twitter @NorthernTrust.

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