In a sign that markets may be nearing a bottom, a survey of investment managers by Northern Trust Global Advisors (NTGA) found that nearly half of those surveyed are less risk averse than they were three months ago.
In the quarterly NTGA poll, the portion of managers who believe the market to be undervalued held steady at just under 80%, but the segment estimating that the market is undervalued by more than 10% grew over the last three months, from 53% to 62% of respondents.
The survey of more than 80 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 March survey include:
-49% of managers said that they were less risk averse than they were three months ago, compared to 23% of respondents who described themselves as less risk averse in the fourth quarter 2008 survey. On the other end of the spectrum, 18% said they were more risk averse, compared to 28% in that category in the prior quarter.
-79% of participants believe that the S&P 500, a broad U.S. market indicator, is undervalued, and 62% of all respondents believe that the S&P 500 is undervalued by more than 10%.
-Managers are acting on their views by shifting from cash to securities. 8% of managers described their cash holdings as at maximum or over their normal levels, down from 16% in the fourth quarter of 2008. While the vast majority of managers remain within their normal cash holding range, this shift represents a notable change at the margins.
-U.S. Treasuries and cash equivalents fell considerably out of favor, falling to ninth place out of 14 broad market segments ranked by managers, while U.S. large cap and U.S. small cap equities retained their top ranking as the most attractive investment opportunities.
-Technology was ranked the most attractive market sector, ahead of healthcare and energy, while consumer discretionary and consumer staples rounded out the top five sectors favored by managers.
-90% of participants believe that corporate earnings will decrease over the next three months, a slight decrease in negative sentiment from the prior quarter, when 95% held that view.
-The global inflation outlook has changed dramatically, shifting from a deflationary view to a belief that the economy is entering a stable or somewhat inflationary environment: 35% of managers believe that global inflation will decrease, compared to 64% with that expectation in the previous quarter.
“Our first-quarter survey finds the beginnings of a positive shift in manager sentiment,” says Chris Vella, global director of manager research, NTGA. “Managers have begun decreasing cash positions and participating more fully in the markets.”
“Our managers’ views regarding the undervaluation of the market, combined with a relatively negative outlook on corporate earnings, are in line with the historical tendency for market rebounds to lead economic recovery,” says Janet Yang, investment product manager, NTGA. “But managers are careful to temper their optimism, and are positioning their portfolios to take advantage of market opportunities for long-term investors.”
L.D.