Northern Trust: Managers big on U.S. growth, concerned over Europe

Institutional money managers are more confident about the U.S. economy, but they still see the European debt crisis as the largest threat to equity markets, according to a quarterly survey by Northern Trust of managers in its Northern Trust Global Advisors multimanager platform.

In the fourth-quarter survey, 74% of the managers believe U.S. economic growth, as measured by GDP, will remain stable or accelerate over the next six months, 10% more than the previous quarter; 74% also say the S&P 500 is undervalued.

Also, 81% say job growth will remain stable or accelerate through midyear, up nine percentage points from the third quarter.

Fifty-two percent expect corporate earnings to increase this quarter, compared to just 34% last quarter.

“The fact that the U.S. economy is on sound footing is being viewed as a positive from managers … corporate balance sheets are solid” relative to the financial markets previously, said Chris Vella, chief investment officer of Northern Trust Global Advisors, in a telephone interview. “There's been more confidence around economic indicators, which has helped with more positive views.”

Fifty-six percent of respondents think one or more countries could leave the European Union because of the debt crisis. Mr. Vella said the risk of a slowdown in China's growth also ranked high among manager's concerns.

Managers were most bullish on U.S. large-cap and small-cap equities and emerging markets as 61% said emerging markets equities were undervalued, up 15 percentage points from the third-quarter survey. The most bullish sectors were technology, energy and consumer staples.

Managers were bearish on conservative fixed-income instruments such as Treasuries and investment-grade bonds, as well as financials, utilities and materials sectors.

Northern Trust surveyed 105 managers in mid-December.