A quarterly poll of investment managers conducted by Northern Trust Global Advisors (NTGA) found a silver lining at the end of a punishing year: almost four out of five managers now believe the equity market to be undervalued. However, most managers believe that the economy is in for at least another quarter of decreasing corporate earnings before a market rebound begins.
The survey of more than 60 institutional managers was conducted by NTGA, the multi-manager subsidiary of Northern Trust. Respondents, all of whom participate in NTGA’s external manager platform, were polled at the end of December. Major findings from the December survey nclude:
* 78% of participants believe that the S&P 500, a broad US market indicator, is undervalued, while just over half (53%) of all respondents believe that the S&P 500 is undervalued by more than 10%.
* 95% of participants believe that corporate earnings will decrease over the next three months.
* While the broad view on global inflation has not changed, more managers believe that the 2009 economy will experience a period of lower inflation or even deflation: 64% of respondents believe that global inflation will decrease in the next six months versus 54% of the previous quarters survey respondents.
* 86% expect housing prices to fall in the next six months and 11% expect housing prices to remain the same. In contrast to the previous quarters survey which saw no managers willing to call the bottom of the housing market, 3% of respondents believe that housing prices may begin
to increase in the first half of 2009.
* Managers ranked US Large Cap Equity and US Small Cap Equity markets as their most attractive investment opportunities. From the third to the fourth quarter of 2008, investments in US Treasuries and other cash equivalents fell in ranking from fifth place to sixth place, out of ten possible broad market segments.
* Investment managers overwhelmingly cited the health care, energy, and technology sectors as their preferred market segments.
For the third quarter in a row, the managers in our survey overwhelmingly see more difficult times ahead, but now the broad consensus extends to a view that markets are undervalued, says Andrew Smith, chief investment officer for NTGA. Looking beyond the short term, these experienced investors see potential beginning in US equities emerging from a period of market turmoil and economic recession.
Our analysis shows that investment managers in our program have been standing by their cautious optimism and taking advantage of investment opportunities when they arise, says Christopher Vella, global director of manager research at NTGA. For many of our managers, cash holdings are at the low range of their historic norms.
For its survey, NTGA polled a select group of respondents, including fixed income and long-only equity managers across value and growth styles. The quarterly poll is intended to help NTGA and participating managers examine trends in attitudes and allocations.
D.C.