A survey of 500 institutional investment managers around the world has found that the majority think markets are underestimating the long-term impact of COVID-19 on the world economy. It also says institutional managers believe the equity market’s current rate of growth is unsustainable.
Conducted by Natixis Investment Managers and released Dec. 8, the survey probing manager’s respective outlooks found that institutions don’t expect the global economy to recover until 2022 or 2023. Some have reduced their long term return assumptions. They expect to see volatility in stock, bond and currency markets going forward and many say defensive portfolios will outperform in the coming year.
The survey found that 79 per cent of institutional manager believe the market is underestimating the long-term impact of COVID-19 on the economy and 78 per cent believe the equity market’s current rate of growth is unsustainable. 82 per cent said current market valuations do not reflect company fundamentals. All that said, just 44 per cent believe a market correction is on the horizon.
Expect portfolio allocations to remain largely unchanged
In discussing asset allocation plans, most said they expect their portfolio allocations to remain largely unchanged in 2021. Among those who are making asset allocation changes, 55 per cent said they are doing so because of changes in their long-term investment strategy, 42 per cent were taking advantage of short-term opportunities, 37 per cent had COVID-19 concerns, and 35 per cent said the exercise was simply part of their annual rebalancing efforts. Over half of those surveyed, 55 per cent say their firm intends to keep their assumed rate of return the same in 2021, eight per cent expect to raise it, and 36 per cent say they have lowered their expectations.
Examining sectors, institutional investors have the greatest confidence in information technology, healthcare and communication services, while real estate, energy, financials and consumer discretionary stocks are expected to underperform.
Top risks include negative interest rates
Looking forward into the future, survey respondents say top portfolio risks are negative interest rates, volatility and credit risk. Of those surveyed, 79 per cent say the markets are likely to favour active investments in the coming months.
“Opinions are split on whether an aggressive or defensive approach will yield better results, but there is consensus that the current market environment is favourable for active management,” they write.
The survey also examines manager’s attitudes about the role of private assets (69 per cent say private assets will play a more important portfolio role going forward, but 80 per cent say current fee terms across private markets are generally too high), gross domestic product growth assumptions, country and asset allocation plans, public policy effects and political risks.
