US - Institutional investment managers believe US equities are undervalued despite many expecting a further decline in US economic growth, a Northern trust survey finds
The survey included 100 investment companies from the firm's manager-of-manager programs and found investors had an increasingly negative macro outlook in comparison to previous quarterly surveys.
Over half of the respondents (52%) said the US equity market, as measured by the S&P 500 Index, is undervalued by over 10%, up 26 percentage points from the second quarter and the highest since the equity market began recovering in the first quarter of 2009.
Over a third surveyed expected the US economic growth to decelerate over the next six months, compared to 21% in the previous survey. Some 39% of managers believe corporate profits will decrease next quarter, compared to 15% while only 34% believed corporate earnings will grow in the next quarter, down from 56% in the second quarter.
Meanwhile, more than 30% believe the recent spike in volatility will die down over the next two quarters, also the highest percentage since 2009. However, 40% expect a rise in volatility over the next six months. Nearly a quarter said their cash levels were "above normal" in the quarter, the highest amount since the firm began the survey in 2008. Northern Trust attributed this to uncertainty in the markets around volatility.
The survey also showed an increasing amount of managers are finding opportunities in US large-cap and emerging markets equities as well as they technology, energy and healthcare sectors. Respondents were more bearish on conservative fixed income allocations such as treasuries and investment grade bonds, as measured by the Barclay's Aggregate Bond Index.
Northern Trust Global Advisors Investment Analyst Kelly Finegan said: "There has been a clear trend in the markets away from more economically sensitive sectors in favour of those that can hold up if the economic indicators and markets continue to be weak. Overall, managers' outlooks are more negative than 3 months ago, but there is still some optimism and managers feel there are numerous areas of the market that offer attractive investments."
Managers selected the European debt crisis as the greatest risk to equities, followed by a rise in US unemployment and inflation in China. Some 63% said the European crisis will affect the US markets and its valuations.
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