Fund managers optimistic for US growth and earnings

Survey1Many investment managers expect interest rates to rise with the advent of Federal Reserve tapering and they predict continued growth in the US economy too, a survey indicates.

Among other findings from the Northern Trust survey of 100 asset managers worldwide in the fourth quarter of 2013 was a belief that corporate profits in the US would increase.

A total of 69% expect interest rates to rise when the US central bank begins tapering and 64% expect earnings to increase over the next three months – which compares to 49% in the survey conducted in the previous quarter.

Northern Trust, a US-based custody bank and asset management firm, conducted the latest quarterly survey in December.

“Optimism continues to rise among investment managers. On several key indicators, managers were more positive in our fourth quarter survey than they had been in the third quarter survey,” said Christopher Vella, chief investment officer for multi-manager solutions at Northern Trust.

Most managers in the survey, which was conducted in December, are bullish on US large-cap equities and have positive expectations on both profit and job growth.

Less positively, 64% of investment managers believe market volatility as measured by the Volatility Index will increase over the next six months. Also, 34% of managers became more risk-averse in their portfolios in the fourth quarter, compared to 20% in the third quarter. More than half report no change in risk aversion.

Most managers see attractive valuations in emerging market and European equities: 57% percent say emerging market equities are undervalued and 52% believe European equities are undervalued.

Managers are almost evenly split on valuations of the Japanese equity market, with 31% seeing it as undervalued, 36% say it is appropriately valued and 33% overvalued. While emerging markets seem to have the most favorable valuations, they are ranked third in the survey behind US large-cap equities and non-US developed markets as the most bullish asset classes.

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