Institutional investment managers were more careful in the second quarter, with 42% reporting greater risk aversion than in the previous quarter, a rise of six percentage points from the first quarter, according to Northern Trust.
Results of the quarterly survey of 99 institutional investment managers revealed the continuation of a trend of increased risk aversion that began in the third quarter of 2010, when 8% of managers said they were more risk averse than in the previous quarter.
Managers were positive on U.S. equities, with 59% saying equities in the S&P 500 are undervalued, up slightly from 57.5% in the previous quarter. Sixty percent said the Japanese equity market was undervalued, down from 66% in the previous quarter.
Chris Vella, global director of research for Northern Trust's multimanager investment business, said in a telephone interview that the heightened risk aversion could be a result of concerns about international markets and slow job growth in the U.S. among other factors.
He noted that 29% of survey respondents in the second quarter said they expect interest rates to rise, down from 47% in the previous quarter. “That could be another indicator that folks are expecting things to slow down,” he said.
In the survey, 37% of managers say emerging market equities are fairly valued, up from 27% the previous quarter. Also, 30% lowered their commodities exposure from the first quarter of 2011.
For investing, managers identified technology, consumer discretionary and health care as the most attractive market segments.