Money managers anticipate higher interest rates, as well as rising market volatility over the next six months, said Northern Trust's latest quarterly money manager survey.
The majority of money managers surveyed in the second quarter, 58%, believe there will be an interest rate hike by the U.S. Federal Reserve over the next three months. The previous quarter, 42% of surveyed managers said they expected higher interest rates over the next three months.
Surveyed managers also, for the second quarter in a row, said that interest rate hikes, along with U.S. monetary policy, held the greatest risks to U.S. equities in the next six months.
Despite what appears to be pessimism regarding interest rates and volatility, managers' expectations for the U.S. economy still improved in the second quarter. Fifty-four percent of surveyed managers expect the gross domestic product to increase during the six months, compared to 38% with that expectation in the first quarter. Also, 64% expect housing prices to increase over the next six months, compared to 52% in the first quarter.
Only 9% of managers said they are holding cash above historically normal levels, compared to 22% in the first quarter, while only 11% decreased their commodity exposure, compared to 32% in the first quarter.
“In the first quarter, some managers became more defensive as the economy slowed,” said Mark Meisel, senior investment product manager for multimanager solutions at Northern Trust, in a news release. “At this point, as the U.S. economy regains some strength and oil prices have leveled off, managers are taking a more historically normal risk posture.”
As environmental, social and governance strategies have been discussed widely recently, the survey also asked managers if they offer ESG strategies, with 38% responding they do.
When asked what kind of institutions are requesting information about ESG strategies, 47% are retirement plans, with foundations and endowments making up 30%; geographically, 55% are non-U.S. investors compared to 45% that are U.S. investors.
The survey was sent June 8-19 to money managers who manage assets for Northern Trust and its clients.