Survey: investment managers decrease cash positions

About 80 percent of managers polled said they believe the stock market to be currently undervalued; within the past three months, Northern Trust points out the sentiment estimating that the market is undervalued by more than 10 percent grew from 53 percent to 62 percent.

Other findings from the survey conducted in mid-March of 250 external managers worldwide include:

• Forty-nine percent of managers said that they were less risk averse than they were three months ago, compared to 23 percent of respondents who described themselves as less risk averse in the fourth quarter 2008 survey.
• Seventy-nine percent of participants believe that the S&P 500, a broad U.S. market indicator, is undervalued, and 62 percent of all respondents believe that the S&P 500 is undervalued by more than 10 percent.
• Managers are acting on their views by shifting from cash to securities. Eight percent of managers described their cash holdings as at maximum or over their normal levels, down from 16 percent in the fourth quarter of 2008. While the vast majority of managers remain within their normal cash holding range, this shift represents a notable change at the margins.
• U.S. Treasuries and cash equivalents fell considerably out of favor, falling to ninth place out of 14 broad market segments ranked by managers, while U.S. large cap and U.S. small cap equities retained their top ranking as the most attractive investment opportunities.
• Technology was ranked the most attractive market sector, ahead of health care and energy, while consumer discretionary and consumer staples rounded out the top five sectors favored by managers.
• Ninety percent of participants believe that corporate earnings will decrease over the next three months, a slight decrease in negative sentiment from the prior quarter, when 95 percent held that view.
• The global inflation outlook has changed dramatically, shifting from a deflationary view to a belief that the economy is entering a stable or somewhat inflationary environment: 35 percent of managers believe that global inflation will decrease, compared to 64 percent with that expectation in the previous quarter.

Respondents for the survey included income and long-only equity managers across value and growth styles, with a bias toward fundamental, bottom-up stock picking strategies.