Institutional Money Managers Show Less Risk Aversion

A survey of investment managers by Northern Trust Global Advisors (NTGA) found that nearly half of those polled are less risk-averse than they were three months ago.

In the quarterly NTGA poll, 49% of managers said that they were less risk-averse that they were three months ago, compared to 23% of respondents who described themselves as less risk averse in the fourth quarter 2008 survey. According to a Northern Trust press release, 18% said they were more risk averse, compared to 28% in the prior quarter.

The portion of managers who believe the market to be undervalued held steady at just under 80%, but the segment estimating that the market is undervalued by more than 10% grew over the last three months from 53% to 62% of respondents.

“Our first-quarter survey finds the beginnings of a positive shift in manager sentiment,” said Chris Vella, global director of manager research at NTGA, in the announcement. “Managers have begun decreasing cash positions and participating more fully in the markets.”

Other findings from the survey of more than 80 institutional managers polled in mid-March include:

  • Seventy-one percent of respondents believe that the S&P 500 is undervalued, and 62% of all respondents believe that the S&P 500 is undervalued by more than 10%.
  • Managers are acting on their views by shifting from cash to securities. Eight percent of managers described their cash holdings as at maximum or over their normal levels, down from 16% in the fourth quarter of 2008.
  • U.S. Treasuries and cash equivalents fell considerably out of favor, falling to ninth place out of 14 broad market segments ranked by managers, while U.S. large-cap and U.S. small-cap equities retained their top ranking as the most attractive investment opportunities.
  • Technology was ranked the most attractive market sector, ahead of health care and energy, while consumer discretionary and consumer staples rounded out the top five sectors favored by managers.
  • Ninety percent of respondents believe that corporate earnings will decrease over the next three months, a slight decrease in negative sentiment from the prior quarter, when 95% held that view.
  • The global inflation outlook has changed dramatically, shifting from a deflationary view to a belief that the economy is entering a stable or somewhat inflationary environment; 35% of managers believe that global inflation will decrease, compared to 64% with that expectation in the previous quarter.