Big European investors like equities more than their U.S., U.K. brethren

Institutions in continental Europe appear to have more favorable attitudes toward equities than their counterparts in the U.K. and U.S., according to a survey of European investors published by JPMorgan Asset Management.

“One reason is because U.K. (and U.S.) institutions currently have much higher allocations to equity compared to their peers” in continental Europe, said Peter Ball, managing director and head of U.K. institutional business at JPMorgan AM.

The survey found institutions in continental Europe average an equity weighting of 29% of total assets compared with 56% among U.K. investors. According to results from an earlier survey conducted by JPMorgan AM, U.S. institutions had a target equity allocation of 54% of the total portfolio.

Among European institutional investors, 61% said they won't dramatically change their target allocations to equity, and 23% said they planned to increase the equity portfolios, according to the current survey, which included 194 institutional respondents in 14 countries. Most investors in Europe expect global equity markets to revert to their historic average rate of returns of between 5% and 10% per year.

In comparison, U.K. executives said they are planning to reduce equity allocations by four percentage points to 52%. And 21% of the U.S. respondents in the earlier survey are planning to reduce equities. As a result, fixed income and alternative investments are likely to rise.

Among European investors in the latest survey, 50% believe emerging markets will be the best-performing region in terms of equity returns in the next 12 months. A separate 25% said emerging markets are likely to be the second-best performer.

Investors are either accessing emerging markets through specialist mandates or they are increasing the weighting of emerging market equities within a global equity mandate, Mr. Ball said in a telephone interview. “We're seeing a lot more people moving from using the MSCI World index as a benchmark to the MSCI All World index, which has a significantly larger weighting to emerging markets … They're essentially encouraging their global equity managers to aim for more (exposure to) emerging market equities.

“Institutions will probably move more (assets) into hedge funds,” Mr. Ball added. “If they don't have allocations to hedge funds already, the first step will probably be (to invest in) hedge funds of funds. If they already have a hedge fund strategy, then they might be looking at single-strategy hedge funds.”

Most alternative assets are expected “to hold steady or deliver increased returns over the next year,” according to a report of the survey.

But investors have mixed opinions about real estate. About 35% of the respondents expected returns on real estate strategies to decrease in the next 12 months while 37.2% expected the returns to rise over the same period. U.K. investors were the most bullish on real estate, with 61.9% expecting healthy returns in real estate, while only 12.5% of the French institutions responded the same.

The survey was conducted in August and September. About 32% of the respondents were corporate pension sponsors, 22.5% were public pension plan executives and 12% came from occupational or industrywide pension funds. The remainder included respondents from insurance companies, charities and foundations.