Northern Trust Corporation : Northern Trust Survey: Institutional Managers Optimistic on U.S. Outlook, but Euro Debt Crisis Overhangs Equities

Institutional investment managers are gaining confidence in the U.S. economy but the European debt crisis continues to be the primary threat to equities markets, according to a quarterly survey conducted by Northern Trust.

In Northern Trust's fourth quarter 2011 survey, 81 percent of participating investment managers expect job growth to remain stable or accelerate over the next six months, an increase of nine percentage points from the third quarter survey. Further, 74 percent believe that economic growth, as measured by GDP, will remain stable or accelerate over the same period, 10 percent more than the previous quarter. And more than half (52 percent) expect corporate earnings to increase in the next three months, up from 34 percent who held that view in the prior quarter.

However, this nascent optimism is tempered by concerns over the ongoing debt crisis in Europe, with managers ranking this issue as the biggest risk to equity markets during the first half of 2012. A majority of managers (56 percent) believe that a continuation of the crisis will likely result in one or more countries being asked to exit the European Union.

"Most indicators continue to affirm that the U.S. economy is expanding modestly despite the ongoing events in Europe," said Chris Vella, Chief Investment Officer for Northern Trust Global Advisors (NTGA), the multi-manager business of Northern Trust. "Although market volatility has persisted and will likely continue to do so until the crisis is resolved, our manager responses this quarter seem to suggest the possibility that the U.S. market may decouple from Europe in 2012, driven by attractive valuation levels for many domestic stocks."

Managers continue to find attractive buying opportunities in U.S. equities but the perceived degree of undervaluation changed significantly compared to the third quarter survey, following a significant upswing in equity markets during October. Thirty-three percent of managers believe that the Standard & Poor's 500 Index is undervalued by more than 10 percent, compared to 52 percent who held this view in the prior quarter. At the same time, the group of managers that see the S&P 500 as undervalued by 10 percent or less grew to 42 percent in the fourth quarter, up from 23 percent previously. Managers also shifted to a more bullish outlook on emerging market equities, with 61 percent stating that the asset class was undervalued, up 15 percentage points from their third quarter view.

The survey of 105 institutional managers was conducted in mid December. Respondent firms participate in Northern Trust's external manager platform for multi-manager investment solutions. Other major findings from the survey include:

• Managers were most bullish on U.S. large cap equities, U.S. small cap equities and emerging markets during the quarter. They were most bearish on conservative fixed income instruments such as Treasuries and investment grade bonds.
• The percentage of managers holding above average levels of cash came down modestly from 23 percent in the third quarter to 15 percent in the fourth quarter.
• Managers identified technology, energy, and consumer staples as the three sectors that they are most bullish about going forward, while they are bearish on financials, utilities and materials.
• Respondents had mixed views on the potential impact from another sovereign debt downgrade in the U.S. While 51 percent of managers said a downgrade would have minimal impact, 44 percent felt the impact would be negative and 5 percent said it would be positive.

For its survey, Northern Trust polled a select group of respondents, including 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.

Northern Trust is a leading provider of multi-manager investment solutions, with $37.3 billion under management as of September 30, 2011 for institutional and personal clients. Having investments with more than 200 external managers worldwide, investment solutions include retail mutual funds, alternative asset classes, Emerging Manager programs, total investment program management and investment outsourcing customized for client needs.

Northern Trust Global Investments (NTGI) is the multi-asset class investment management business of Northern Trust Corporation. NTGI comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment advisor division of The Northern Trust Company and Northern Trust Global Advisors, Inc. and its subsidiaries.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2011, Northern Trust had assets under custody of US$4.2 trillion, and assets under investment management of US$644.2 billion. For more than 120 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 www.northerntrust.com.

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