Investment managers bearish on U.S. economy

The possibility of a recession in Europe and slower growth in China has made investment managers less positive about the U.S. economy and corporate earnings.

A new second quarter survey by Northern Trust found that fewer than 10 percent of investment managers believe the global risks will be severe enough to push the U.S. economy into recession.

A majority of the 100 investment managers surveyed in mid-June believe Greece will remain in the European Monetary Union or make an orderly exit from the currency, while 31 percent expect a Greek exit from the Eurozone will create a contagion effect that spreads recession to other countries. Nearly a quarter of those surveyed felt that other countries also would leave the Eurozone.

"As a result of these macro concerns and higher levels of uncertainty, our survey shows that the previously positive outlook for U.S. economic growth has deteriorated this quarter," said Chris Vella, chief investment officer for Northern Trust Multi-Manager Investments. "While investment managers are not anticipating that the U.S. will fall into a recession, the vast majority believe that the U.S. will face a more severe slowdown than anticipated. Growing numbers of managers expect market volatility to increase and are holding above average levels of cash this quarter, reflecting their cautious stance."

Some positives that came out of the survey include 67 percent of respondents saying that U.S. equity markets are attractively valued, with more than a quarter seeing more than 10 percent upside. One-third of respondents felt that housing prices would rise in the next six months, the highest number since the survey began in the third quarter of 2008.

"Investment managers continue to have confidence in U.S. large cap equities and are most bullish on the information technology, consumer discretionary and healthcare sectors," said Kelly Finegan, an investment analyst for Northern Trust Multi-Manager Investments, who oversees the survey. "U.S. small caps and emerging markets equities are also favored, and more managers are bullish on private real estate. This quarter, the outlook for energy stocks deteriorated and managers remain most negative about utilities, with more than half expressing a bearish view on that sector."

For its survey, Northern Trust polled a select group of respondents, including 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.

Northern Trust provides multi-manager investment solutions, with approximately $37 billion under management and $23 billion under advisement as of March 31, 2012, for institutional and personal clients.

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