Institutional investors are concerned about risk going into 2016, but they still see a bright year ahead for equities, said a new survey from Natixis Global Asset Management.
Of the 660 global institutional investors surveyed online in October, 46% said their primary investment goal for 2016 is to “achieve the highest possible risk-adjusted return,” followed by 42% saying their primary goal is “managing volatility in investment returns.” More than one answer was accepted.
Despite their concern over risk, 48% of respondents said they plan to increase their allocations to equities, with 37% planning to maintain their allocation and 14% planning to decrease their allocations. Numbers don't total 100% due to rounding.
It is a different story with bonds, with 42% responding they will maintain their allocation to fixed income, 42% decreasing their allocations, and only 16% planning to increase their allocation.
David Lafferty, chief market strategist at Natixis Global Asset Management, said in a telephone interview it is interesting to see more interest in equities despite mitigating risk being such an important goal for investors.
Based on that, Mr. Lafferty said “the excitement for equities is really just trying to mitigate their bond risk. They don't find fixed income very attractive, and that's sort of driving the interest in equity allocations.”
“I think that's a further indication that their head tells them to manage volatility, but their heart tells them to find equity exposure because that's the only place to find returns,” Mr. Lafferty added.
Regarding fixed income, 84% of respondents said they are concerned about the low-yield environment.
When rates rise, 65% of respondents said they plan to move to shorter-duration bonds from longer durations, while 49% said they plan to reduce their exposure to bonds, and 47% said they will increase their use of alternative strategies. Other plans when rates rise were to integrate more absolute-return strategies (32%) and diversify more geographically (30%).
In alternatives, 50% of respondents said they plan to increase their allocation to private equity, while 37% said they would maintain the current allocation and 12% would decrease it. Numbers don't total 100% due to rounding. Forty-six percent of respondents said they would increase their private debt allocation, and 47% said they would maintain their current allocation, while only 7% said they would decrease it.
Forty-one percent of respondents said they would increase their hedge fund allocation, while 45% said they would maintain the current one, and 14% plan to decrease it.