Natixis survey: Investors look to public equity for best performance in 2015

Nearly half of institutional investors, 46%, believe that public equities will provide the best performance potential in 2015, said a survey by Natixis Global Asset Management of 642 investors' market outlook opinions.

Ten percent picked private equity, while 7% picked real estate and 5% said global fixed income.

Although institutional investors favor stocks for 2015, they're selective in the regions where they see potential, with 12% global equities, 12% U.S., 11% emerging markets, 6% European and 5% Asian. Their optimism is also tempered by modern market realities, as 81% of respondents said they believe it will be difficult to manage volatility over the coming years.

About 41% of institutions said they plan to add value-oriented equity strategies to their portfolio in 2015, as opposed to 31% that said they will add growth-oriented strategies.

Despite being optimistic about equities, institutions are also hedging their bets with allocations to alternative investments. Seventy-three percent of respondents said they will maintain or increase allocations to illiquid investments, while 87% said they will maintain or increase allocations to real estate. About one-third, 36%, of institutions also plan specific applications for alternatives as they look to mitigate interest rate risk in a potentially rising rate environment.

Forty-nine percent of those surveyed said it is essential for institutions to invest in alternatives in order to outperform the broad markets.

Although volatility has remained at or near historic lows throughout recent years, most respondents believe it will be difficult to mitigate the impact of volatility in the coming years. Meanwhile, 77% are concerned about their ability to manage tail risk.

When asked to rank the biggest risks facing the market, institutions put geopolitical risk at the top of the list, followed by European economic stagnation and slowing growth in China. Rounding out the top five are rising interest rates and a faltering economic recovery.

Institutions will deploy a range of strategies to mitigate risk in their portfolios, according to the survey. The most frequently cited strategies were implementing risk budgeting tactics (56%) and increasing allocations to non-correlated asset classes (55%), while to a lesser degree, risk management concerns are leading 23% of institutions to look at increasing their use of liquid alternative strategies.