(January 14, 2013) — Institutional investment managers largely stayed the course with their portfolios through the close of 2012, despite the unending drama over the fiscal cliff and debt ceiling, according to a Northern Trust survey.
Less than a quarter (22%) of the approximately 100 managers surveyed in mid-December incorrectly anticipated that the United State’s federal government would fail to take action before the January 1 deadline. Tellingly, three-quarters of those surveyed by the Chicago-based management firm said they made no change to portfolio concentration and 81% held their normal amount of cash on hand as the deadline approached.
Compared with the fiscal cliff, respondents were even more confident in Congress’ action on the debt ceiling: 89% predicted legislators will raise the country’s credit limit as needed this year. However, just over half (54%) still see the US’ credit rating at risk for downgrades, as occurred over the first debt ceiling tussle in 2011.
On a positive note, managers were broadly optimistic over key economic indicators. For the next six months, 82% of respondents said they expect an increase in US housing prices, and a large majority also foresaw job growth remaining stable or picking up.
“Manager sentiment regarding the housing market and job growth continued to improve in this quarter’s survey,” said Chris Vella, chief investment officer for Northern Trust’s multi-manager investments division, in the survey report. “The share of managers with expectations for improving home prices reached its highest point since we began the survey in the third quarter of 2008. And although managers listed the fiscal cliff and the European debt crisis as key concerns, they remained generally bullish on equities.”
Managers were most bullish on information technology, health care and industrials, according to the survey.
Although institutional managers largely agreed on housing and jobs, respondents’ were increasingly polarized on what the next six months holds for corporate earnings and US economic growth. One third of managers surveyed anticipated GDP growth to pick up, while 21% said they believe it will decelerate. Less that half of respondents (46%) expected GDP growth to remain steady, while 62% thought it would in Northern Trust’s third-quarter survey.
One high-profile investment manager has actually come out and encouraged the US Federal Reserve to help speed up GDP growth through monetary policy. Tony Crescenzi, executive vice president of the Pacific Investment Management Company, published a whitepaper calling for continued quantitative easing. “Today, with the system more stable but economic stagnation posing a threat to the long-term health and vitality of the US economy, we think monetary policy should aim to promote faster economic growth,” Crescenzi argued. “The Fed’s mantra in 2013 therefore must be to print, print, print, thereby using coinage to nudge annual growth in nominal gross domestic product (GDP) toward 5% instead of the recent slow pace of about 4%.”
Read more details of Northern Trust’s manager survey here.