Global fund selectors rank the potential for a recession (52%) as the top macroeconomic threat to markets this year, according to the 2024 Fund Selector Outlook Survey, released Feb. 8 by Natixis Investment Managers.
That threat was followed by tensions created by war and terrorism in Ukraine, Gaza and Yemen (50%) at a close second, with central bank policy errors (36%) ranking in third place.
Regarding recession, almost half (49%) of those surveyed think it is inevitable this year.
"Ukraine has already had an impact on the global economy, inflating both energy prices and food prices across Europe," Natixis noted in the survey. "After nearly 24 months of war in Ukraine, less than one in five (18%) are forecasting a peace dividend in 2024; instead, 82% see no end in sight."
Meanwhile, two-thirds (66%) of fund selectors are bullish on bonds for this year, citing higher interest rates designed to contain rampant inflation rates, although new concerns have been raised for fixed-income portfolios in terms of timing decisions to lengthen duration.
Following bonds, selectors also remain bullish on private debt (57%) and private equity (55%).
But selectors are somewhat less bullish on stocks than they are on bonds — 56% expect the equity markets to deliver strong performance in 2024, citing, among other things, worries about declining consumer spending.
"Higher interest rates, receding inflation, and lower expectations for both economic growth and market returns are the foundation of an unfamiliar landscape that will challenge investors in 2024," Natixis said in the survey. "It adds up to an environment that could have a big impact on portfolios and one that could put clients on edge."
Given concerns about recession and tempered views on investment returns in 2024, most fund selectors said they will rely on active management to "identify the opportunities that may be few and far between in this new landscape."
Some 63% of respondents believe actively managed investments will outperform passive strategies in 2024.
In response to this climate, selectors said their firms are adjusting their product offerings for clients by, among other things, increasing the availability of third-party model portfolios (41%) and separately managed accounts (37%) to their platforms.
Overall, Natixis said, fund selectors will respond to an uncertain macro and market outlook with a "measured approach" to portfolio construction. "While concerns are running high, few anticipate wholesale changes to their allocation strategy," the firm stated. "Instead, selectors will look to reposition bonds by emphasizing duration and quality, in stocks they will stay close to home with larger companies."
The survey comprised 500 investment professionals in 26 countries managing a total of almost $35 trillion in client assets. The survey was conducted in November and December.
