NTGA Survey: Institutional Investment Managers Less Optimistic
12 July 2010 Chicago
Image: Shutterstock
Institutional investment managers have moderated their expectations for global growth, according to a quarterly survey conducted by Northern Trust Global Advisors (NTGA), and more than two-thirds of those surveyed expect that sovereign debt concerns regarding Portugal, Italy, Ireland, Greece and Spain will weigh on global markets for the next six months or longer.
In a significant shift from the prior four quarters, a majority of managers no longer expect global growth to accelerate over the next six months. Seventy-five percent of those surveyed by NTGA in the second quarter anticipate that global growth will remain the same or decelerate, while 25 percent still expect growth to accelerate. Accordingly, institutional managers are less concerned about the prospect of inflation or rising interest rates.
Managers are also increasingly optimistic about market valuations. For the first time since the second quarter of 2009, the majority of managers (62 percent) stated that the U.S. equity market, as measured by the S&P 500 Index, is undervalued. Select areas of international markets are also seen to be attractive: 40 percent of managers now believe that emerging market equities are undervalued.
"Our second quarter survey revealed less optimistic growth expectations from our managers. In an environment where growth is less broad-based, employing managers that are strong stock pickers can be even more valuable," said Chris Vella, global director of research for NTGA.
The survey of approximately 90 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-June.
Managers in the second quarter poll were asked for their views on the sovereign debt concerns regarding Portugal, Italy, Ireland, Greece and Spain. A strong majority of managers (68 percent) expect the concerns over these Eurozone countries to weigh on global markets for more than six months. As a result, 21 percent of managers have reduced exposure to these countries, while the majority of managers (57 percent) have avoided these countries altogether.
"This quarter our managers revealed to us their concern that the issues relating to the Eurozone countries may be a longer-term problem." said Kelly Swiatek, NTGA investment analyst. "This issue is likely weighing on their views of global economic growth."
Other major findings from the survey include:
A shift in expectations of market volatility, as 29 percent of managers expect the Volatility Index (VIX) to decrease over the next six months, up from only 9 percent that held that view in the first quarter. More than 40 percent believe volatility could increase over that period, down from 51 percent with that expectation in the first quarter survey.
Reflecting managers' views of the market, 62 percent of managers believe the S&P 500 Index is undervalued, compared to 16 percent who believe the market is overvalued. Regarding international markets, 53 percent of managers surveyed believe that Japanese equity markets are undervalued, unchanged from the first quarter; while 40 percent believe emerging markets are undervalued, up from 32 percent in the first quarter.
Investment managers cited technology, energy, healthcare, emerging markets and industrials as the top five most attractive market segments. Consumer discretionary slipped out of the top five, while emerging markets moved up in the rankings.
A growing number of managers (80 percent) are confident that interest rates will be steady over the next quarter. This figure is up from 66 percent in the first quarter. About 18 percent of managers surveyed expect interest rates to rise, compared to 32 percent in the first quarter.
Concerns over global inflation diminished, with just 19 percent of managers saying they expect increased inflation in the next six months compared to 46 percent in the first quarter. An increasing majority of managers (60 percent) predict that global inflation will remain the same.
Nearly a third of managers (31 percent) stated that they are more risk-averse compared to three months ago, up from 23 percent in the first quarter. At the same time, portfolio concentration has increased, with 24 percent of managers saying their portfolios are more concentrated compared to 10 percent in the last survey. That stated, 79 percent of managers are within their normal range of cash holdings, holding steady from the first quarter survey.
For its survey, NTGA 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 NTGA and participating managers can examine trends in attitudes and allocations.
In a significant shift from the prior four quarters, a majority of managers no longer expect global growth to accelerate over the next six months. Seventy-five percent of those surveyed by NTGA in the second quarter anticipate that global growth will remain the same or decelerate, while 25 percent still expect growth to accelerate. Accordingly, institutional managers are less concerned about the prospect of inflation or rising interest rates.
Managers are also increasingly optimistic about market valuations. For the first time since the second quarter of 2009, the majority of managers (62 percent) stated that the U.S. equity market, as measured by the S&P 500 Index, is undervalued. Select areas of international markets are also seen to be attractive: 40 percent of managers now believe that emerging market equities are undervalued.
"Our second quarter survey revealed less optimistic growth expectations from our managers. In an environment where growth is less broad-based, employing managers that are strong stock pickers can be even more valuable," said Chris Vella, global director of research for NTGA.
The survey of approximately 90 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-June.
Managers in the second quarter poll were asked for their views on the sovereign debt concerns regarding Portugal, Italy, Ireland, Greece and Spain. A strong majority of managers (68 percent) expect the concerns over these Eurozone countries to weigh on global markets for more than six months. As a result, 21 percent of managers have reduced exposure to these countries, while the majority of managers (57 percent) have avoided these countries altogether.
"This quarter our managers revealed to us their concern that the issues relating to the Eurozone countries may be a longer-term problem." said Kelly Swiatek, NTGA investment analyst. "This issue is likely weighing on their views of global economic growth."
Other major findings from the survey include:
A shift in expectations of market volatility, as 29 percent of managers expect the Volatility Index (VIX) to decrease over the next six months, up from only 9 percent that held that view in the first quarter. More than 40 percent believe volatility could increase over that period, down from 51 percent with that expectation in the first quarter survey.
Reflecting managers' views of the market, 62 percent of managers believe the S&P 500 Index is undervalued, compared to 16 percent who believe the market is overvalued. Regarding international markets, 53 percent of managers surveyed believe that Japanese equity markets are undervalued, unchanged from the first quarter; while 40 percent believe emerging markets are undervalued, up from 32 percent in the first quarter.
Investment managers cited technology, energy, healthcare, emerging markets and industrials as the top five most attractive market segments. Consumer discretionary slipped out of the top five, while emerging markets moved up in the rankings.
A growing number of managers (80 percent) are confident that interest rates will be steady over the next quarter. This figure is up from 66 percent in the first quarter. About 18 percent of managers surveyed expect interest rates to rise, compared to 32 percent in the first quarter.
Concerns over global inflation diminished, with just 19 percent of managers saying they expect increased inflation in the next six months compared to 46 percent in the first quarter. An increasing majority of managers (60 percent) predict that global inflation will remain the same.
Nearly a third of managers (31 percent) stated that they are more risk-averse compared to three months ago, up from 23 percent in the first quarter. At the same time, portfolio concentration has increased, with 24 percent of managers saying their portfolios are more concentrated compared to 10 percent in the last survey. That stated, 79 percent of managers are within their normal range of cash holdings, holding steady from the first quarter survey.
For its survey, NTGA 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 NTGA and participating managers can examine trends in attitudes and allocations.
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