Institutional Investment Managers Staying the Course

January 14, 2013 ( Despite concerns over the impending fiscal cliff deadline, institutional investment managers surveyed in mid-December were largely staying the course and making few changes in their portfolios.

According to a quarterly survey by Northern Trust, 84% of those surveyed feared that failure to avoid the fiscal cliff would have a negative impact on financial markets. Yet less than one-quarter (22%) of the money managers surveyed thought it was likely that the federal government would not take action before January 1. Three-quarters made no change to portfolio concentration, and 81% held their normal range of cash as the deadline approached, the survey showed.  

Among managers surveyed, 55% expect market volatility to increase in the next six months. Fifty percent believe U.S. equities are undervalued, and 57% see upside in emerging market equities. On a sector basis, managers are most bullish about information technology, health care and industrials.   

The survey showed a growing divergence in managers’ views about U.S. economic growth and corporate earnings. One-third of managers surveyed expect U.S. GDP growth to accelerate over the next six months, up from 25% with that view in the third quarter of 2012. The share of those who expect GDP to decelerate was also up, to 21% from 14% in the prior quarter, while the group who expect stable GDP growth shrank to 46%, from 62%.    

Investment managers’ expectations for corporate earnings growth are also mixed: 32% think corporate earnings will grow in the first quarter of 2013, while the same percentage believes earnings will decline.