GLOBAL - Institutional investment managers showed a marked trend towards risk aversion in the second quarter of 2011 amid negative economic news, research by Northern Trust found.
Some 42% of managers surveyed said they were more risk-averse than they were in the first three months of the year, up from 36% in Q1. Northern Trust said the findings sustain an increasing trend that began in the third quarter of 2010, when just 8% of managers reported being more risk-averse than they were in the prior quarter.
Despite their risk-averse stance, nearly three-quarters of respondents, who all participate in Northern Trust's multi-manager strategies, had positive views on the outlook for job growth and a majority expect corporate earnings to continue growing in the short term.
"It appears that our managers are becoming increasingly concerned that economic growth may be hitting a soft patch, a view that we've seen reflected in their more cautious approach towards risk," said Chris Vella, global director of research for Northern Trust's multi-manager investment solutions business.
"Although their general outlook remains favourable for the remainder of the year, the mixed signals coming from the economy seem to have slightly recalibrated their expectations."
The survey also found 46% of managers said they anticipate gross domestic product (GDP) growth to accelerate in the second half of 2011, an increase of seven percentage points from the first quarter of 2011. A majority of managers also remained bullish on corporate earnings, with 56% expecting earnings growth in the third quarter. This figure was lower than first quarter results, when 69% expected earnings growth.
Other findings from the survey include:
•37% of managers believe emerging market equities are fairly valued, up from 27% in the first quarter.
•50% of managers think that home prices will decline over the next six months, an increase of 8 percentage points over the prior quarter and the highest level since the second quarter of 2009.
•30% of managers said their commodities exposure was lower in the second quarter compared to the first quarter. There was also a 17 percentage point decrease in the number of managers whose commodities exposure increased. These two data points may signal concerns of slowing demand for commodities and slowing global economic growth. They are also likely tied to lower expectations for inflation.
•Managers identified technology, consumer discretionary and healthcare as the three most attractive market segments for investment during the second quarter.
•Despite having a lower tolerance for risk, the vast majority (72%) of investment managers did not change their portfolio's concentration during the quarter.
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