The Markets July 14, 2009

Managers Have Expectations for Corporate Earnings Growth

Investment managers expect corporate earnings to increase in the next three months, and a majority expect global GDP growth to accelerate in the next six months, according to the second quarter 2009 Northern Trust Global Advisors (NTGA) survey of investment managers.
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The poll found that 58% of managers expect global inflation to increase in the next six months, compared to just 17% of managers who held that view last quarter, according to a press release. Thirty-nine percent of participants say corporate earnings will increase in the next three months, compared with just 1% who said the same last quarter.

The survey also found a dramatic decline from first quarter in managers who believe the market, as represented by the S&P 500, to be undervalued (80% in first quarter verse 51% in second quarter).

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Other survey findings, according to the press release, include:

  • 79% of managers said that they were either less risk-averse or had no change in their risk aversion in the last three months.
  • 29% and 32% of responders believe that corporate earnings will stay the same or decrease, respectively, in the next three months.
  • Unchanged from the previous quarter, U.S. small-cap equity was ranked as the most attractive investment opportunity. In a sign that managers are now willing to take more risk, second place emerging market equity and seventh place emerging market debt climbed in rankings from the previous quarter.
  • Investment managers cited technology and energy as their top two most attractive market segments, followed by health care, industrials, and consumer discretionary products. Industrials made its first appearance in the top five, edging out consumer staples.

NTGA conducted the survey of more than 70 institutional managers in mid-June.

Data & Research July 14, 2009

Fidelity: Auto Enrollment Working as Intended

A new analysis from Fidelity Investments indicated that automatic enrollment in 401(k) plans is proving to have the biggest impact on younger and lower-compensated employees.
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Fidelity data of auto enrolled participants in plans it administers showed that more than half (52%) were between the ages 20 and 34. By comparison, only 13% of participants that were auto-enrolled were between the ages of 50 and 64. The impact of auto enrollment on older participants is not as significant as many are either already participating or elect to enroll on their own, Fidelity said in a press release.

Data also showed that the majority (56%) of participants that were enrolled automatically made less than $40,000 a year. Among the participants that were auto-enrolled, only 10% had higher salaries ranging from $80,000 to $150,000 a year.

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“Auto enrollment is doing exactly what it was intended to do,” said Scott David, president, Workplace Investing, Fidelity Investments, in the press release. “It is driving many Americans who would have otherwise not saved—mostly the young and lower-paid employees—to begin saving early and consistently which is critical to having a healthy income in retirement.”

The number of Fidelity plans offering auto enrollment increased nearly 70% since the end of 2007 to 2,699 corporate defined contribution plans as of March 31. While this represents just 16.3% of 401(k) plans that Fidelity manages, nearly half of all participants are in a plan with auto enrollment as the adoption of the feature has been led by some of the largest plans.

More than 50% of plans with 25,000 or more participants have adopted auto enrollment, compared to just 13% of the smallest plans, those with 500 participants or less. Fidelity Investments Institutional Services (FIIS) 401(k) plans were excluded from the analysis.

The analysis of workers eligible for automatic enrollment showed that only one in 10 proactively opt out of the plan. The average participation rate seen in Fidelity plans that do not use auto enrollment is about 60%, compared to 90% for plans that adopt auto enrollment for both new and existing employees.

Fidelity also found that workers overwhelmingly either accept the default deferral rate set by the employer or elect to increase it regardless of how high the rate. An analysis of plans with the most common default deferral rate of 3% showed that 57% keep that contribution rate and another 37% elect to increase it. Behavior of workers in plans with a 6% default deferral rate was not much different, with 60% opting to keep the rate and another 24% electing to increase.

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