Institutional investment managers are increasingly pessimistic about U.S. economic growth, but many still see opportunities in U.S. equities markets, according to a quarterly survey by Northern Trust.
Thirty-six percent of survey respondents believe U.S. economic growth will decelerate over the next six months. Another 40% said market volatility will increase over the next six months, while 30% believe the recent spike in volatility is temporary.
Investors are clinging to cash, with 23% holding a higher-than-normal level of cash in the third quarter, up from 12% in the previous quarter. Forty-six percent said emerging markets equities were undervalued, up eight percentage points from the previous quarter.
Kelly Finegan, Northern Trust Global Advisors investment analyst, said managers are still finding opportunities in the market.
“Generally, equities they are finding to be very attractive,” she said in a telephone interview.
She said 52% believe the U.S. equity market, as measured by the S&P 500, is undervalued by more than 10%, up 26 percentage points from the second-quarter survey.
“That’s the highest number to say it is undervalued since the first quarter of 2009,” Ms. Finegan said, noting that most are bullish on large- and small-cap equities.
Respondents said the European debt crisis poses the greatest risk to U.S. equity markets over the next six months, followed by a spike in U.S. unemployment and inflation in China.
The survey of 100 investment firms that participate in Northern Trust’s manager-of-managers program was conducted in late September.