Low Rates World Has Northern Trust Banking On Stocks
Low Rates World Has Northern Trust Banking On Stocks
(Bloomberg) -- Northern Trust Corp. is putting more of its $1.2 trillion stockpile into equities, on the expectation that lower interest rates will ensure that the U.S. economy avoids a recession and keep profit margins high.
The firm is now heavily tilted in favor of stocks and high-yield bonds after last week increasing exposure to listed companies around the world, said Bob Browne, Northern Trust’s chief investment officer. Despite rallies that took gauges of U.S. equities and corporate bonds to record highs this week, there’s more money to be made as the Federal Reserve slashes borrowing costs by an expected 75 basis points this year, he said.
“We’re in a low-rate, low-growth world,” said Browne, who’s been managing funds since the late 1980s. “The U.S. is a good place to have risk.”
Since dialing back risk levels at the end of September, Northern Trust ramped up exposure again in January. The firm now has about 100 basis points of what it calls “active risk,” which is less than at the start of 2018 but still strongly tilted to risk assets, he said.
“The preference is for an economy that continues to grow, where we think operating margins will remain high, that will avoid a recession,” Browne said in the interview in Sydney Thursday. “That makes us comfortable with having credit exposure and risk exposure overall. Despite trade risk -- a notable exception -- it’s supported by a pro-business, pro-risk president.”
Even so, earnings gains may be unspectacular. Northern Trust expects U.S. growth at 1.6% to 1.7% and inflation at less than 2% over the next five years. That means just 5% average annual earnings growth, he predicts.
To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net
To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger
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