Globally, institutional investors expect stocks to be top-performing assets in the year to come.
That's according to a survey by Natixis Global Asset Management. The study also found, however, that despite their expectations, these institutional investors intend to play it safe with the assets of the pensions, endowments and sovereign wealth funds they manage by sticking predominantly to income-producing investments and eschewing riskier possibilities.
While stocks might have been the top pick, it doesn't mean the majority of institutional investors came down on their side—less than half (48 percent) chose them over other alternatives. Still, stocks were far and away the most popular option, with alternative assets coming in a distant second at 28 percent; bonds at 13 percent; and real estate (7 percent), energy (3 percent) and cash (2 percent) trailing the field.
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The survey asked 642 investors at institutions that manage a collective $31 trillion for their market outlooks. Institutions believe they can realistically expect yearly returns of 6.9 percent after inflation, according to the survey. Earlier Natixis surveys of financial advisors and individuals globally found that advisors said clients could expect returns of 5.6 percent after inflation, while individuals said they needed returns of 9 percent after inflation to take care of their needs.
Institutional investors cited as the four top threats to next year's investment performance geopolitical events (17 percent); European economic problems (13 percent); slower growth in China (12 percent) and increasing interest rates (11 percent).
A little less than three quarters of respondents (73 percent) say they will maintain or increase allocations to illiquid investments, and 87 percent say they will maintain or increase allocations to real estate. Almost half (49 percent) believe institutions have to invest in alternatives to outperform the broad markets.
Institutional investors, when asked for advice for individual investors for the next year, warned against making emotional decisions (84 percent). They also suggested alternative investing strategies (76 percent), setting return targets based on personal goals instead of market benchmarks (62 percent) and considering risk before return when putting together a portfolio (61 percent).
Over the next three years, 67 percent of institutional investors foresee problems caused by rising interest rates. To counter this, 61 percent said they'd move from longer- to shorter-duration bonds, while 46 percent said they'd reduce their bond exposure. And 36 percent would boost their allocation to alternative strategies.
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