Institutional Investment Managers Remain Optimistic

The fourth quarter 2009 survey found 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, according to a press release. There was some evidence that managers have further decreased cash positions in the fourth quarter, with 13% at or under their minimum cash holdings, compared to 10% in that position in the prior quarter.

Investment managers cited technology, health care, energy, emerging markets, and consumer discretionary as the top five most attractive market segments. Emerging markets made its first appearance on the list, while materials and industrials fell out of the top five, the press release said.  

The optimistic outlook in NTGA’s 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. This is more than double the number (20%) of those who believe the market is overvalued, according to a press release. Thirty-five percent see the S&P 500 as appropriately valued.

For the fourth quarter survey, managers also provided their views of Japanese and emerging market equities.  While nearly half (48%) view 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.  

While 76% of managers expect global growth to accelerate over the next six months, that number is down from 84% in the prior quarter. The segment of managers who expect global growth levels to remain the same in that time period rose to 22% 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 – little changed from last quarter’s 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. Sixty-one percent of mangers anticipate an end to home value declines in the next six months – the highest number since the inception of the NTGA survey in the third quarter of 2008.

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.  

The survey of more than 100 institutional managers was conducted by NTGA, the multi-manager arm of Northern Trust Corp., among participants in NTGA’s external manager platform in mid December.