Investment managers are growing increasingly optimistic, according to a survey conducted Dec. 3 to 18 by Northern Trust.
The survey of some 100 equity and fixed income managers across value and growth styles found that they expected continued growth in the American economy and corporate profits even as the Federal Reserve's easing program moves ahead.
"On several key indicators, managers were more positive in our fourth-quarter survey than they had been in the third-quarter survey," Christopher Vella, chief investment officer for multimanager solutions at Northern Trust, said in a statement.
"Most managers expected the Fed would taper QE3 in the first quarter of 2014 and expect interest rates to rise as a result, yet they continue to be bullish on U.S. large-cap equities and have positive expectations on both profit and job growth."
Respondents saw fundamentals within the economy and corporations as steady to improving. Ninety-five percent of respondents expected job growth to be steady or grow over the next six months, compared with 86% who held that view in the previous survey.
On corporate profits, 64% thought earnings would increase over the next three months, versus 49% with that view in the third quarter survey. Overall, 95% of respondents believed corporate earnings would be stable or increase.
At the same time, 64% of investment managers thought market volatility, as measured by the Chicago Board Options Exchange's Volatility Index, would increase over the next six months.
Thirty-four percent of managers said they had become more risk-averse in their portfolios in the fourth quarter, compared with 20% in the third quarter. More than half reported no change in risk aversion.
The vast majority said they had maintained a "normal" cash level, in line with the previous quarter.
Most respondents saw attractive valuations in overseas equities. Fifty-seven percent said emerging market equities were undervalued, and 52% believed European equities were undervalued.
