Northern Trust Survey

Investment Managers Expect Lower U.S. Corporate Profits, Bullish on Non-U.S. Stocks

Growing Interest Seen in Unconstrained and Outsourced CIO Mandates

April 17, 2015 – CHICAGO–(BUSINESS WIRE)–Investment managers see a change in U.S. monetary policy as the top risk to equities, and also have concerns about U.S. corporate profits and a preference for non-U.S. equities, according to a quarterly survey by Northern Trust Asset Management.

The survey of approximately 100 money managers also provided some perspective on business activity around unconstrained investment strategies and the growth of Outsourced Chief Investment Officer (OCIO) mandates by institutional investors.

In the first quarter, managers placed monetary policy first on a list of risks to equities over the next six months, replacing geopolitical risk, which had topped the list for the past year. The change came as the Federal Reserve indicated it is closer to raising the base U.S. interest rate and removing some of the monetary stimulus that has supported financial markets over the last several years.

Most opportunity in non-US equities

Investment manager views on U.S. corporate profits also shifted, with 35 percent expecting a decrease in earnings, up from 5 percent the previous quarter. Managers saw the most opportunity in non-U.S. equity markets: 88 percent said European markets are fairly or undervalued, compared to 82 percent who placed emerging market equities in those valuation categories and just 62 percent who viewed U.S. equities as appropriately valued or undervalued.

“More managers expect U.S. economic growth to be stable rather than accelerating in this quarter’s survey, while U.S. equity valuations are a little less attractive and volatility is expected to rise,” said Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust. “For the first time in several quarters, managers are more bullish on non-U.S. developed market equities and U.S. small cap stocks than they are on U.S. large cap equities.”

As the U.S. dollar appreciates against the yen and euro, 72 percent of managers believe that the economies of both Japan and the Eurozone will benefit. Nearly three quarters (74 percent) of managers see little or modest probability of a Eurozone crisis resulting from Greece’s debt negotiations and rising anti-euro sentiment in some countries.

Meanwhile, expectations for the U.S. economy moderated from previous quarters, with more managers saying GDP growth, housing prices and job growth will remain stable rather than accelerate over the next three or six months. Expectations for market volatility were also lower: 69 percent of managers said volatility, as measured by the Chicago Board of Options Exchange Volatility Index (VIX), will increase over the next six months, down from a historic high of nearly 80 percent of managers with that view in the fourth quarter.

“More managers reported this quarter that they have increased the risk aversion in their portfolios and increased their cash level to above historic norms,” said Mark Meisel, Senior Investment Product Manager for Multi-Manager Solutions at Northern Trust. “While most maintain steady levels of cash or risk aversion, it seems that valuations and reduced corporate profit expectations in the U.S. may be leading some managers to take risk off the table.”

Business Trends: OCIO and Unconstrained Strategies

U.S. equity valuations are a little less attractive and volatility is expected to rise

For more than half of the managers (54 percent) surveyed, outsourced chief investment officer (OCIO) mandate are a growing or steady part of their business. In an OCIO mandate, a pension, endowment or other large asset owner hires a third-party investment firm to take on fiduciary responsibility for running an investment program.

Among the 54 percent of managers with OCIO mandates, 31 percent reported it is a small but growing part of their business, 18 percent said it is a steady part of their business and 5 percent said it is a significant and growing source of business flows. Investment managers also reported increased interest from investors in unconstrained strategies, which invest across various asset classes, sectors or market capitalizations, not tied to traditional benchmarks.

Thirty-six percent of managers reported increasing interest from prospects in these mandates. For its survey, Northern Trust polls investment firms that participate in its multi-manager investment programs and funds. The select group of respondents includes fixed income and equity managers across value and growth styles, with a bias toward fundamental, bottom-up stock picking strategies.

The survey is conducted quarterly so that Northern Trust and participating managers can examine trends in attitudes and allocations. The full Investment Manager Survey Report and a video on survey highlights can be found on Northern Trust’s web site at Northern Trust is a leading provider of multi-manager investment solutions, with $61.8 billion under management and $44.6 billion under advisement as of December 31, 2014, for institutional and personal clients.

Northern Trust invests with more than 200 external managers worldwide, offering personal and institutional solutions that include retail mutual funds, alternative asset classes, emerging manager programs and total investment program management. Asset Management at Northern Trust comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc. and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.


About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide. Chicago-based Northern Trust has offices in 19 states, Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2014, Northern Trust had assets under custody of US$6 trillion, and assets under investment management of US$934.1 billion.

For 125 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit and follow us on Twitter @NorthernTrust. Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at