Investment managers are less optimistic on the prospects for U.S. economic growth in the near term and more concerned about the potential impact of an emerging markets slowdown on stock prices, according to a quarterly survey by Northern Trust Asset Management.

The survey of approximately 100 money managers, taken in mid-September, found a sharp drop-off in expectations for U.S. growth: only 29% expect growth to accelerate over the next six months, down from the 54% who expected accelerating growth in the previous quarter’s survey and the smallest portion in the past three years with that view.

With global market volatility in August and early September as a backdrop, investment managers ranked a slowdown in emerging markets as the top risk to equity markets. In the previous quarter, emerging markets had been ranked last of eight possible risks to equities. A change in U.S. monetary policy, which was ranked as the top risk to equities in the previous two quarters, fell to fourth place in the third-quarter survey.

After stock market volatility hit record levels during the August market sell-off, nearly 20% of managers expect market volatility to decrease in the next six months, compared to just 1.4% with that view in the previous survey. A majority, nearly 60%, believe volatility will increase, but that is down from 74% with that view in the previous survey.

“Almost one in three managers is taking advantage of market volatility,” says Mark Meisel, senior investment product manager for Multi-Manager Solutions at Northern Trust Asset Management. “Thirty percent of managers reported that have slightly increased their turnover to take advantage of market opportunities over the past quarter. At the same time, 20% have reduced their foreign currency exposure due to volatility in currency markets.”

Concern over a slowdown in China was listed as the top reason for the equity market sell-off in August and early September. Concern over the timing of a U.S. Federal Reserve interest rate increase was second, and continued weakness in the price of oil and other commodities was third.

Two-thirds (66%) of managers expect little impact to financial markets if the Fed raises short term interest rates in 2015, because it is already priced in to markets. However, 20% believe it will lead to additional U.S. dollar appreciation and to emerging market declines.

Investment-grade corporate bonds, U.S. high yield, global high yield-ex. U.S., and floating rate loans were ranked as the most attractive segments in the current fixed income environment. Asset-backed securities, emerging market bonds (U.S. dollar) and emerging market bonds (local currency) were ranked least attractive.

Fifty-two percent of managers view emerging market equities as undervalued, up from 38% with that view in the previous quarter; 49% believe European equities are undervalued, down from 52% with that view previously. Views on U.S. equities were mixed, with the largest portion, 37%, viewing the S&P 500 Index as overvalued by as much as 10%.

Managers were most bullish on non-U.S. developed equities and U.S. small-cap, and most bearish on U.S bonds and emerging market debt.

The full Investment Manager Survey Report and a video about survey highlights can be found at www.northerntrust.com/managersurvey.