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 January 22, 2016 - 9:30 AM EST
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Northern Trust Survey: Investment Managers Remain Wary of Emerging Markets and U.S. Corporate Profits

European Stock Valuations Attractive; Bullish on Information Technology

A potential slowdown in emerging-market economies remains the top concern of investment managers in a quarterly survey by Northern Trust Asset Management, while expectations on U.S. economic growth and corporate earnings continue to be low for the short term.

For the second consecutive quarter, investment managers in the fourth-quarter survey ranked a slowdown in emerging markets as the biggest risk to global equity markets over the next six months. U.S. corporate earnings ranked as the second-highest risk to equity markets, and a slowdown in the U.S. economy ranked third, up from sixth place in the prior quarter.

“Managers rank corporate earnings and U.S. economic growth as top concerns,” said Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust. “A lower percentage of managers expect U.S. corporate earnings, job growth or U.S. GDP to accelerate than has been the case for a number of years. Most managers still expect U.S. economic activity to remain stable, but this change in expectations is worth monitoring going forward.”

The survey of approximately 100 money managers, taken December 3-21, also sought views on the expected market reaction to extended low oil prices, the U.S. Federal Reserve’s likely course on interest rate hikes, and regional equity market valuations.

Although most managers surveyed (53 percent) expect corporate earnings to remain the same, more managers expect earnings to decrease than increase (24 percent to 23 percent) over the next 6 months. On the U.S. economy, those who expect an increase in U.S. GDP over the next six months fell to 23 percent, down from 54 percent in the second quarter of 2015. Sixty four percent of respondents expect U.S. GDP growth to remain the same over the next six months.

While emerging markets are the top concern for equity markets, the probability of emerging markets causing a global economic recession is considered quite small by investment managers. The vast majority (84 percent) of respondents believe that weakness in emerging markets has less than a 25 percent probability of turning into a global recession over the next year.

In December, with oil prices falling below $50 per barrel, managers were asked how sustained prices at that level would affect U.S., developed non-U.S. and emerging markets equities. Nearly half (49 percent) said expect low oil prices to have a negative impact on emerging market equities, and 45 percent said there would be a positive impact on developed non-U.S. equities. For U.S. equities, 25 percent expect a negative impact, with the rest divided between positive and neutral.

Looking at portfolio positioning, an increased percentage of managers are more risk-averse, 22 percent, up from 17 percent in the third quarter. Over two-thirds of managers, 69 percent, expect volatility to increase in the U.S. equity market over the next six months.

“Even with lower energy prices, more than half of the managers maintained the same level of commodities exposure as the prior quarter,” said Mark Meisel, Senior Investment Product Manager for Multi-Manager Solutions at Northern Trust. “About an equal percentage of managers added to their commodities position as lowered their exposure. More generally, increased market volatility for some managers has led to increased risk-aversion but most managers have not altered their portfolios.”

Other findings of the fourth quarter survey include:

  • Non-U.S. equity markets are viewed as having the most attractive valuations: 54 percent say European equities are undervalued, and 52 percent see emerging market equities as undervalued. U.S. equities are seen as undervalued by just 21 percent of managers, the lowest percentage since the survey began in the third quarter of 2008. Forty-one percent of investment managers view U.S. equities as overvalued, up from 37 percent in the third quarter.
  • More than two-thirds (68 percent) of managers expect the Fed will raise rates with a series of small interest rate increases. About 20 percent expect the Fed will hold off on any further increases after its December rate hike.
  • More than half (55 percent) of managers expect U.S. economic growth will trend toward slower-than-normal growth over the next few years, while 37 percent expect the economy will trend toward normal growth rates.
  • Information technology has a bullish rating from 68 percent of managers, followed by financials at 38 percent.

For its survey, Northern Trust polls investment firms that participate in its multi-manager investment programs and funds. The select group of respondents includes 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. The full Investment Manager Survey Report and a video on survey highlights can be found on Northern Trust’s web site at

Northern Trust Asset Management is a leading provider of multi-manager investment solutions, with more than $97 billion in assets ($56.1 billion under management and $41.0 billion under advisement) as of September 30, 2015, for institutional and personal clients. Northern Trust invests with more than 300 external managers worldwide, offering personal and institutional solutions that include outsourced chief investment officer (OCIO) services, alternative asset classes, single asset class solutions and emerging manager programs.

Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, 50 South Capital Advisors, LLC, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc. and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2015, Northern Trust had assets under custody of US$6.1 trillion, and assets under management of US$875 billion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit or follow us on Twitter @NorthernTrust.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at

Northern Trust Corporation
Media Contact:
John O’Connell

Source: Business Wire (January 22, 2016 - 9:30 AM EST)

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