Northern Trust Survey: Institutional Managers See U.S. Economy Improving, Equity Correlations And Volatility Coming Down

Institutional investment managers are becoming increasingly positive on the U.S. economy, but remain concerned about macro risks such as the European debt crisis, according to a survey conducted in the first quarter of 2012 by Northern Trust. A large portion of managers also believe that correlations between equities will begin to move lower, after reaching record highs in the fall of 2011.

The survey of 100 institutional managers, conducted in mid-March by Northern Trust’s Multi-Managers Solutions group, showed a meaningful increase in positive expectations for the U.S. economy over surveys taken in previous quarters. Nearly half (49 percent) of managers expect GDP growth to accelerate over the next six months, up from 29 percent in the fourth quarter of 2011.

Managers also remain confident in corporate earnings; in fact, more than three-quarters anticipate earnings growth will remain stable or accelerate throughout 2012. The outlook for job growth in the United States remains favorable, with 33 percent of respondents expecting a pick-up in job growth and 49 percent expecting job growth to be stable over the next six months. The biggest threat to equity markets remains the situation in Europe followed by domestic concerns, such as the impact of the U.S. elections and the U.S. sovereign debt level.

“Despite continuing concern about the situation in Europe, institutional investment managers saw more positive economic and financial market signals in the first quarter this year than they did at the end of 2011," said Chris Vella, Chief Investment Officer for Northern Trust’s Multi-Managers Solutions group. "For example, 40 percent of managers believe market volatility will decline from current levels. Lower volatility combined with lower correlations between equities should benefit bottom-up, fundamentally focused investment managers."

Forty percent of managers surveyed believe correlations among equities should move lower over the next six months. Correlations among equities reached record-high levels in late-2011.

Despite the strong performance in U.S. equities since the fall of 2011, the majority of the managers surveyed believe U.S. equities remain attractively valued. Emerging markets are also viewed as attractively priced with more than 60 percent of managers seeing upside in emerging markets. Other areas of opportunity include investments in the technology and energy sectors. The outlook remains weak for fixed income investments as well as the utilities and telecom sectors.

Northern Trust’s Multi-Managers Solutions group is the manager of managers business of Northern Trust Corp. Respondents, all of whom participate in Northern Trust’s external manager platform, were polled in mid-March.

Other key findings from the first quarter survey include:
  • Nearly half of managers surveyed (49 percent) believe job growth will remain stable over the next two quarters, with a third anticipating an acceleration in job growth over that period.
  • Managers were most bullish on U.S. large cap equities, U.S. small cap equities and emerging markets, unchanged from the fourth quarter. They were most bearish on fixed income securities such as U.S. Treasuries, investment grade bonds and non-U.S. bonds.
  • Managers identified technology and energy as the sectors that they are most bullish on in the short-term, while they are bearish on utilities and telecom. The outlook for the financial sector improved notably in the first quarter.

For its survey, Northern Trust polled a select group of respondents, including fixed income and equity managers across value and growth styles, with a bias toward fundamental, bottom-up stock picking strategies. The survey is conducted quarterly so that Northern Trust and participating managers can examine trends in attitudes and allocations.

Northern Trust is a leading provider of multi-manager investment solutions, with more than $34 billion under management as of December 31, 2011, for institutional and personal clients. Northern Trust invests with more than 200 external managers worldwide, offering personal and institutional solutions that include retail mutual funds, alternative asset classes, emerging manager programs and total investment program management.

Northern Trust Global Investments (NTGI) is the multi-asset class investment management business of Northern Trust Corporation. NTGI comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment advisor division of The Northern Trust Company and The Northern Trust Company of Connecticut and its subsidiaries.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2011, Northern Trust had assets under custody of US$4.3 trillion, and assets under investment management of US$662.9 billion. For 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com.

Copyright Business Wire 2010

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