A large portion of managers also believe that correlations between equities will begin to move lower, after reaching record highs in the fall of 2011, according to a survey from Northern Trust.

The survey showed a meaningful increase in positive expectations for the U.S economy over surveys taken in previous quarters. Nearly half (49%) of managers expect GDP growth to accelerate over the next six months, up from 29% in the fourth quarter of 2011.

Managers also remain confident in corporate earnings; in fact, more than three-quarters anticipate earnings growth will remain stable or accelerate throughout 2012. The outlook for job growth in the U.S. remains favorable, with 33% of respondents expecting an increase in job growth and 49% expecting job growth to be stable over the next six months. The biggest threat to equity markets remains the situation in Europe followed by domestic concerns, such as the impact of the U.S. elections and the U.S. sovereign debt level.

“Despite continuing concern about the situation in Europe, institutional investment managers saw more positive economic and financial market signals in the first quarter this year than they did at the end of 2011,” said Chris Vella, chief investment officer for Northern Trust’s Multi-Manager Solutions group. “For example, 40% of managers believe market volatility will decline from current levels. Lower volatility, combined with lower correlations between equities, should benefit bottom-up, fundamentally focused investment managers.”

Forty percent of managers surveyed believe correlations among equities should move lower over the next six months. Correlations among equities reached record-high levels in late 2011.

Despite the strong performance in U.S. equities since the fall of 2011, the majority of the managers surveyed believe U.S. equities remain attractively valued. Emerging markets are also viewed as attractively priced with more than 60% of managers seeing upside in emerging markets. Other areas of opportunity include investments in the technology and energy sectors. The outlook remains weak for fixed-income investments, as well as the utilities and telecom sectors.

Other key findings from the first quarter survey include:

•  Nearly half of managers surveyed (49%) believe job growth will remain stable over the next two quarters, with a third anticipating an acceleration in job growth over that period.

•  Managers were most bullish on U.S. large-cap equities, U.S. small-cap equities and emerging markets, unchanged from the fourth quarter. They were most bearish on fixed income securities such as U.S. Treasuries, investment-grade bonds and non-U.S. bonds.

•  Managers identified technology and energy as the sectors that they are most bullish on in the short-term, while they are bearish on utilities and telecom. The outlook for the financial sector improved notably in the first quarter.

The survey included 100 institutional manager respondents, and was conducted in mid-March by Northern Trust’s Multi-Manager Solutions group.