Institutional money managers are bracing for rough times over the coming six months, according to a new survey by Northern Trust.
Seventy percent of managers expect inflation to rise, while 62% see increased market volatility as measured by the VIX Index. The survey found that 36% of managers are more risk averse, up from 20% in the last quarter.
More than half of managers said they expected oil prices would continue to rise over the next six months, while 90% agreed that this would have a negative impact on economic growth. Just over a quarter of survey respondents said they had increased their portfolio exposure to commodities as a hedge against inflation.
“Global events during the first quarter of 2011 have given our managers a lot to digest in a very short amount of time,” says Chris Vella, global director of research for Northern Trust Global Advisors, the multi-manager investment arm of Northern Trust. “With renewed unrest in the Middle East, it makes sense that managers have become increasingly concerned about the impact that a spike in oil prices will have on economic growth.”
When global conditions get hairy, it’s understandable that managers seek to invest closer to home, and 58% regard U.S. equities to be undervalued. But with a negative economic outlook, the percentage expecting higher corporate earnings has fallen from 80% in the Q4 2010 survey, to 69% in the Q1 2011 survey.
The U.S. market isn’t the only place showing value, though. Two-thirds of respondents said that Japanese equities are undervalued in the wake of the series of earthquakes and the tsunami that hit that country’s north east coast.
Emerging markets were seen as undervalued by 43%, up from 39% in the previous survey.