Institutional investment managers were more risk averse in the second quarter of 2011 as worry over the economy increased, yet almost three-quarters were optimistic about job growth and over half expect corporate earnings to grow in the short term, according to a survey released on Monday by Northern Trust.

The quarterly survey showed that 42% of managers said they were more risk-averse in the second quarter of 2011 than they were in the first quarter when 36% said they were more risk-averse than the previous quarter. This is a trend that has been increasing since the third quarter of 2010 when 8% reported being more risk-averse than they were in the prior quarter.

“It appears that our managers are becoming increasingly concerned that economic growth may be hitting a soft patch, a view that we’ve seen reflected in their more cautious approach towards risk,” said Chris Vella, Global Director of Research for Northern Trust’s multi-manager investment solutions business, in a press release. “Although their general outlook remains favorable for the remainder of the year, the mixed signals coming from the economy seem to have slightly recalibrated their expectations.”

This quarter’s survey by Northern Trust polled about 100 institutional managers in mid-June who were asked their expectations for job growth over the next six months. Seventy-two percent reported that they expect growth to either remain stable or increase.

Meanwhile, 46% of managers said they expect gross domestic product to accelerate in the second half of 2011, an increase of seven percentage points from the first quarter of 2011. In addition, 56% of managers also remained bullish on corporate earnings, with an expectation of earnings growth in the third quarter, a decline from first quarter results, when 69% expected earnings growth.

Fifty-nine percent of managers reported they believed the U.S. equity market, measured by the S&P 500 Index, is undervalued, while 60% believe the Japanese equity market is attractive. Thirty-seven percent of managers believe emerging market equities are fairly valued, up from 27 percent in the first quarter. Fifty percent of managers think that home prices will decline over the next six months, an increase of 8 percentage points over the prior quarter and the highest level since the second quarter of 2009. Managers also seem to be lowering their commodities exposure, a sign that they are worried about slowing demand for commodities and slowing global economic growth. 

Where do investment managers think their clients should invest? Technology, consumer discretionary and healthcare are the three most attractive market segments for investment during the second quarter, managers reported.

Although investment managers have a lower tolerance for risk, 72% did not change their portfolio’s concentration during the quarter, Northern Trust said.