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Northern Trust Press Release


Northern Trust Survey: Interest Rates and Volatility to Rise but Investment Managers Positive on U.S. Economy

Managers also Offer Views on China’s Stock Market and ESG Investing

CHICAGO, July 21, 2015 —

With the U.S. Federal Reserve signaling it will raise its base interest rate for the first time in nine years, investment managers are anticipating higher interest rates – and rising market volatility – over the next six months, according to a quarterly survey by Northern Trust Asset Management.

The survey of approximately 100 money managers also provided some insights into China’s stock markets and environmental, social and governance (ESG) investing.

Expectations for a U.S. interest rate hike rose in the second quarter, with 58 percent of those surveyed expecting rates to rise during the next three months, up from 42 percent with that response in the first quarter of 2015. Also, for the second quarter in a row, ‘U.S. Monetary Policy’ and a ‘Rise in Interest Rates’ held the top two spots in the managers’ ranking of the greatest risks to equities over the next six months.

Nearly three-quarters of managers (74 percent) expect equity market volatility to increase over the next six months, the second-highest reading on market volatility since the Northern Trust survey began in the third quarter of 2008.

At the same time, investment managers surveyed in the second quarter were more positive on the U.S. economic outlook than in the previous quarter. A majority (54 percent) expect U.S. GDP growth to accelerate over the next six months compared to 38 percent with that view in the first quarter. Sixty-four percent expect housing prices to increase over the next six months, a 12 percentage-point jump from the first quarter.

“After a slowdown in economic activity in the first quarter, managers are expecting a pick-up in the U.S. in the second quarter,” said Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust. “Despite expectations for increased economic and profit growth, a large portion of managers expect market volatility to increase.”

Fewer managers, 9 percent, are holding cash above their historically normal levels, down from 22 percent holding extra cash in the first quarter. Decreasing commodities exposure, another defensive measure, was down sharply in the second quarter: just 11 percent of managers said they lowered their commodity exposure, after 32 percent said they had done so in the first quarter.

“In the first quarter, some managers became more defensive as the economy slowed,” said Mark Meisel, Senior Investment Product Manager for Multi-Manager Solutions at Northern Trust. “At this point, as the U.S. economy regains some strength and oil prices have leveled off, managers are taking a more historically normal risk posture.”

Trends: Chinese Equities and ESG Investing
In the survey, conducted June [8th to 19th], managers were asked about prospects for China’s stock market, which had been rising for months before a steep decline in June. The vast majority respondents – approximately 89 percent -- said they expect Chinese equity index levels to either fall or flatten out from then-current levels by the end of 2015, while a much smaller group (approximately 11 percent) thought Chinese stocks would end the year higher.

With index provider MSCI Inc. considering the addition of China A-shares to its widely used Emerging Markets Index, managers did not foresee much immediate impact: 90 percent said the addition of China A-shares would have a moderate impact or little impact on emerging market flows and performance in the six months following a change. Just 10 percent believe it would have a large impact.

As strategies that incorporate Environmental, Social or Governance (ESG) factors generate more discussion and interest, approximately 38 percent of managers in the survey said they offer ESG investment strategies, while 62 percent do not. Of the investors requesting ESG investment strategies, nearly half (47 percent) are pension or retirement plans. Foundations and endowments are the next, with 30 percent of requests. More than half (55 percent) of prospects or clients are non-U.S. investors, and 45 percent are based in the United States.

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. The full Investment Manager Survey Report and a video on survey highlights can be found on Northern Trust’s web site at

Northern Trust Asset Management is a leading provider of multi-manager investment solutions, with more than $100 billion in assets ($63.1 billion in assets under management and approximately $43 billion under advisement) as of March 31, 2015, for institutional and personal clients. Northern Trust invests with more than 300 external managers worldwide, offering personal and institutional solutions that include outsourced chief investment officer (OCIO) services, alternative asset classes, single asset class solutions and emerging manager programs.

Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, 50 South Capital Advisors, LLC 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 asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide. Chicago-based Northern Trust has offices in 19 states, Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of March 31, 2015, Northern Trust had assets under custody of US$6.1 trillion, and assets under investment management of US$960.1 billion. For 125 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 and 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