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 NTGAs 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% ) 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.
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% of managers expect global growth to accelerate over the next six months, that number is down from 84% 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% , up from 16% in third quarter 2009.
* The outlook for corporate earnings remains positive with 84% of managers expecting profits to increase in the first quarter of 2010. That is little changed from last quarters survey. Interest rate expectations were also largely unchanged, with 21% of managers expecting an increase in the next three months and 77% anticipating no change in that period.
* Managers also see the housing market stabilizing: 61% of mangers 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% of managers believe the S&P 500 Index is undervalued more than double the number (20% ) of those who believe the market is overvalued. Thirty-five% see the S&P 500 as appropriately valued.
* Global inflation expectations rose slightly, with 45% of managers saying they expect increased inflation in the next six months, up from 43% with that view in the third quarter. The majority of managers (52% ) 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% ) stated that they have had no change in risk aversion and 86% 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% at or under their minimum cash holdings, compared to 10% 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% ) views the Japanese equity market as appropriately valued, the remaining 37% of managers believe that market is undervalued. There was greater dispersion of responses regarding emerging markets: 38% of managers believe emerging market equities are overvalued, while 30% believe these markets are undervalued.
D.C.