Institutional investment managers are becoming increasingly positive on the U.S. economy, but still remain concerned about macro risks such as the European debt crisis, according to a survey by Northern Trust.
The survey of 100 U.S. institutional managers showed an increase in positive expectations for the country’s economy over surveys taken in previous quarters. Nearly half (49%) of managers expect GDP growth to accelerate over the next six months, up from 29% in the fourth quarter of 2011.
Managers also remain confident in corporate earnings; more than three-quarters anticipate earnings growth will remain stable or accelerate throughout 2012. The biggest threat to equity markets remains the situation in Europe.
“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-manager solutions group. “For example, 40% 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.”
Of the managers surveyed, 40% 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, the majority of managers surveyed believe U.S. equities remain attractively valued. Emerging markets are also viewed as attractively priced, with more than 60% of managers seeing upside in emerging markets.
Other areas of opportunity include investments in the technology and energy sectors. However, the outlook remains weak for fixed income investments as well as the utilities and telecom sectors.