Investment managers expect further growth in the U.S. economy and do not expect that problems in emerging markets will spread to developed markets, according to a quarterly survey conducted by Northern Trust.
The survey of approximately 100 managers, taken March 4-19, found that only 11 percent of managers believe that financial market volatility and a slowing rate of economic growth in emerging markets create a significant risk of contagion for developed markets. A large majority - 89 percent - said there is only a small to modest probability (under 25 percent) that emerging markets challenges will spread to developed markets. Also, 79 percent of investment managers believe that the weak U.S. economic data reported in recent months is temporary, and expect stronger numbers to return in the second quarter of 2014.
"Managers are wary, but still optimistic, with a positive view of U.S. economic fundamentals," said Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust. "Managers expect U.S. GDP, corporate profits, housing prices and jobs to continue to improve, and that confidence appears to outweigh their concerns about geopolitical risks like the Ukraine-Russia conflict and the slowdown in emerging markets economic growth."
As in the previous quarter, managers are positive regarding U.S. economic fundamentals: over the next six months, 89 percent believe job growth will remain stable or accelerate and 97 percent expect steady or accelerating U.S. GDP growth, while 95 percent of respondents believe corporate earnings will increase or remain stable over the next three months. In addition, 73 percent of managers expect housing prices to rise up to 10 percent in the next six months, as compared to 66 percent with that view last quarter.
But fewer managers than last quarter anticipate an increase in interest rates: 48 percent expect rates to rise over the next three months, versus 66 percent in the fourth quarter. Most managers, 67 percent, expect inflation to remain the same, while 33 percent expect a rise in inflation over the next six months. The vast majority of managers - 90 percent - are in line with their historical cash positions. A sizeable minority of managers, 27 percent, were more risk- averse in the first quarter than previously, while 63 percent reported no change in their risk aversion compared to three months ago. About 70 percent of investment managers believe market volatility as measured by the Chicago Board Options Exchanges Volatility Index (VIX) will increase over the next six months, a slight increase from 64 percent in the fourth quarter.
Emerging market equities are viewed as having the best valuations by managers: 64 percent believe emerging market equities are undervalued, up from 57 percent in the fourth quarter. European equities are seen as undervalued by 54 percent of investment managers. This compares with 30 percent of the managers who view U.S. equities as undervalued while 42 percent see U.S. equities as appropriately valued. Even though emerging markets seem to have the most favorable valuations, they are ranked fourth in terms of bullishness, behind U.S. large cap equities, non-U.S. developed markets and U.S. small cap equities.
"Investment managers expect continued improving fundamentals within the U.S., supporting their bullish view on U.S. equities, despite less favorable valuations," said Mark Meisel, Senior Investment Product Specialist of the Multi-Manager Solutions group, who oversees the survey. "When asked about investing in emerging markets, 41 percent of managers said there are still too many uncertainties and 27 percent responded that fundamentals do not support their current valuations."
On the bullish-bearish spectrum for broad economic sectors, managers continue to be most bullish on information technology, industrials and health care:
· 58 percent of the managers are bullish and 10 percent are very bullish on information technology
· Utilities (67 percent), telecomm services (50 percent) and materials (31 percent) have the largest percentages of managers rating them as bearish
For more details, please see the full Investment Manager Survey Report on Northern Trust's web site. 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. For more information, please go to http://www.northerntrust.com/managersurvey
Northern Trust is a leading provider of multi-manager investment solutions, with more than $42.7 billion under management as of December 31, 2013, 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 comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc. and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
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 18 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2013, Northern Trust had assets under custody of US$5.6 trillion, and assets under investment management of US$884.5 billion. 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 www.northerntrust.com or follow us on Twitter @NorthernTrust.
Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at http://www.northerntrust.com/disclosures
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