Institutional asset owners globally are increasingly concerned about equity market risk, said Allianz Global Investors' annual RiskMonitor survey released Tuesday.
Forty-five percent of survey respondents deemed equity market risk a “considerable” threat to portfolio performance over the next 12 months, and 32% deemed it a “moderate” threat, compared to 25% and 55%, respectively, in 2015. Other top threats to portfolio performance cited this year were interest rate risk, event risk and foreign-exchange risk.
Investors this year also were asked their main market concerns, with the most investors (42%) citing volatility, followed by the low-yield environment (24%) and uncertain monetary policy (16%).
In the face of a low-return environment, 37% of investors said maximizing risk-adjusted returns was their top investment goal in 2016, followed by generating yield or income at 19%, benchmark outperformance at 15% and absolute return at 15%.
With those goals in mind, 29% and 28% of investors globally said U.S. equities and European equities, respectively, were the asset classes on which they expect to go long in 2016, similar to last year, followed by investment-grade corporate debt at 27% (up from 10% in 2015), real estate at 23% (up from 18%) and high-yield corporate debt at 17% (up from 9%).
On the flip side, 31% of investors said they would go short on high-yield debt this year, up from 23%, followed by emerging market sovereign debt at 27%, emerging markets equities at 26%, Asia-Pacific equities at 22% and commodities at 22%.
Institutional investors recognize there are risks in the stock market, but they also recognize stocks are important sources of return, said Kristina Hooper, U.S. investment strategist at AllianzGI, in a telephone interview.
The survey also asked investors about their risk management strategies, discovering there has barely been any change since the 2007-'08 financial crisis. The most popular risk management strategies remain asset class diversification (58%), geographic diversification (56%) and duration management (54%). Ms. Hooper noted these strategies remain popular despite only 38% of investors reporting their risk strategies provided sufficient downside protection during the financial crisis.
Cost was cited by 47% of investors as an inhibitor to risk management implementation. However, investors are poised to put additional resources into improving risk management, Ms. Hooper said, noting that 48% of respondents stated they are willing to spend more on better risk management strategies and 54% reporting their organization already allocated more resources toward improving risk management this year.
The 2016 survey also explored investors' attitudes toward ESG, finding that 45% of respondents incorporate environmental, social and governance factors into their investment decision-making. Ethics was cited as the top reason for ESG integration (38%), followed by corporate policy at 31% and minimizing reputation and litigation risk at 19%.
At the same time, however, only 43% of respondents believe ESG implementation has improved investment performance and only 26% believe it will lead to higher risk-adjusted returns.
The survey of more than 755 global institutional asset owners representing more than $26 trillion in combined assets was conducted in the first quarter of 2016.
