Institutional investors sought risky investments over the three months ended Dec. 31, with 56% increasing their risk appetite and favoring equities, according to a survey by ING Investment Management International.
According to the money manager's latest “risk rotation” survey of 79 global institutional investors, equity was the most popular asset class with 73% of investment professionals favoring it, up from 64% in the third quarter 2013. Real estate was second favorite at 45%, up from 34% in the three months ended Sept. 30. ING said there was not comparable data for the increase in risk appetite, since the survey was started in 2013.
Only 11% of investors said they were looking for less risky investments, down from 18% for the third quarter.
Investor sentiment is strong for Japan, with 60% of participants convinced that the economic policies introduced by Prime Minister Shinzo Abe would revive the Japanese economy, up from 37% in the previous quarter.
The removal of quantitative easing and rising interest rates are the issues of most concern, with 19% of participants citing them as “very significant.” The eurozone crisis worries 37% of respondents — an improvement in sentiment from the 54% of participants who said this was their greatest threat in the third quarter.
“(We are) not surprised (at the risk appetite),” said Valentijn van Nieuwenhuijzen, head of strategy, multiasset, at ING Investment Management, in an e-mail. “Systemic fear is fading, central banks remain committed to support growth, developed markets (are) on the most sustainable recovery track since the crisis broke in 2008 and institutional investors (are) gradually being tempted back into equity markets due to low expected returns in fixed-income assets — in which they are massively overweight on the back of a 30-year bull market.”
Mr. van Nieuwenhuijzen said he expects the risk appetite to continue. “Lower system risks and higher interest rates create less reputation risk (of being long a risky asset when the system 'breaks') for pension fund managers and better coverage ratios. Against a backdrop of attractive relative valuation of equities compared to bonds, this creates an undercurrent of support for better risk appetite amongst pension fund managers,” he said.