More than two-thirds of those surveyed (68%) expect that sovereign debt concerns regarding Portugal, Italy, Ireland, Greece and Spain will weigh on global markets for more than six months.  As a result, 21% of managers have reduced exposure to these countries, while the majority of managers (57%) have avoided these countries altogether, according to a press release. 

In a significant shift from the prior four quarters, a majority of managers no longer expect global growth to accelerate over the next six months. Seventy-five percent of those surveyed by NTGA in the second quarter anticipate that global growth will remain the same or decelerate, while 25% still expect growth to accelerate. 

Accordingly, institutional managers are less concerned about the prospect of inflation or rising interest rates. 

Managers are also increasingly optimistic about market valuations. For the first time since the second quarter of 2009, the majority of managers (62%) stated that the U.S. equity market, as measured by the S&P 500 Index, is undervalued, the press release said. Select areas of international markets are also seen to be attractive: 40% of managers now believe that emerging market equities are undervalued. 

Other findings from the survey include: 

A shift in expectations of market volatility, as 29% of managers expect the Volatility Index (VIX) to decrease over the next six months, up from only 9% that held that view in the first quarter. More than 40% believe volatility could increase over that period, down from 51% with that expectation in the first quarter survey. 

Reflecting managers’ views of the market, 62% believe the S&P 500 Index is undervalued, compared to 16% who believe the market is overvalued. Regarding international markets, 53% of managers surveyed believe that Japanese equity markets are undervalued, unchanged from the first quarter; while 40% believe emerging markets are undervalued, up from 32% in the first quarter. 

Investment managers cited technology, energy, health care, emerging markets, and industrials as the top five most attractive market segments.  Consumer discretionary slipped out of the top five, while emerging markets moved up in the rankings.   

A growing number of managers (80%) are confident that interest rates will be steady over the next quarter. This figure is up from 66% in the first quarter. About 18% of managers surveyed expect interest rates to rise, compared to 32% in the first quarter. 

Concerns over global inflation diminished, with just 19% of managers saying they expect increased inflation in the next six months compared to 46% in the first quarter. An increasing majority of managers (60%) predict that global inflation will remain the same.   

Nearly a third of managers (31%) stated that they are more risk-averse compared to three months ago, up from 23% in the first quarter. At the same time, portfolio concentration has increased, with 24% of managers saying their portfolios are more concentrated compared to 10% in the last survey.  That stated, 79% of managers are within their normal range of cash holdings, holding steady from the first quarter survey.  

The survey of approximately 90 institutional managers was conducted by NTGA, the multi-manager arm of Northern Trust Corp., among managers who participate in NTGA's external manager platform in mid-June.