MANAGERS SAY EQUITY MARKET IS UNDERVALUED, ACCORDING TO NORTHERN TRUST POLL

Posted January 13, 2009

CHICAGO – Almost four out of five investment managers believe the equity market is undervalued, according to a quarterly poll of more than 60 institutional managers conducted by Northern Trust Global Advisors (NTGA). Respondents are participants in NTGA’s external manager platform.

“For the third quarter in a row, the managers in our survey overwhelmingly see more difficult times ahead, but now the broad consensus extends to a view that markets are undervalued,” says Andrew Smith, Chief Investment Officer, NTGA. “Looking beyond the short term, these experienced investors see potential beginning in US equities emerging from a period of market turmoil and economic recession.”

However, most managers believe that the economy is in for at least another quarter of decreasing corporate earnings before a market rebound begins. Major findings from the December 2008 survey include:

• 78 percent of participants believe that the S&P 500, a broad US market indicator, is undervalued, while just over half (53 percent) of all respondents believe that the S&P 500 is undervalued by more than 10 percent.

• 95 percent of participants believe that corporate earnings will decrease over the next three months.

• While the broad view on global inflation has not changed, more managers believe that the 2009 economy will experience a period of lower inflation or even deflation: 64 percent of respondents believe that global inflation will decrease in the next six months versus 54 percent of the previous quarter’s survey respondents.

• 86 percent expect housing prices to fall in the next six months and 11 percent expect housing prices to remain the same. In contrast to the previous quarter’s survey which saw no managers willing to call the bottom of the housing market, 3 percent of respondents believe that housing prices may begin to increase in the first half of 2009.

• Managers ranked US Large-Cap Equity and US Small-Cap Equity markets as their most attractive investment opportunities. From the third to the fourth quarter of 2008, investments in US Treasuries and other cash equivalents fell in ranking from fifth place to sixth place, out of 10 possible broad market segments.

• Investment managers overwhelmingly cite the health care, energy, and technology sectors as their preferred market segments.

“Our analysis shows that investment managers in our program have been standing by their cautious optimism and taking advantage of investment opportunities when they arise,” says Christopher Vella, Global Director of Manager Research at NTGA. “For many of our managers, cash holdings are at the low range of their historic norms.”