Continuing economic and policy uncertainties have institutional investors and money managers split on their approach to equity exposure.
Despite volatility, markets are rallying overall — but some investors are still exercising patience while others are taking a risk-off approach.
A white paper published by investment consultant bfinance last month, titled "Five Levers for Reducing Equity Risk," concluded that the assessment and control of equity risk exposure is an increasingly important priority for asset owners this year. The paper cites an investment portfolio made up of 55% equities, 31% bonds and 14% alternatives, and shows risk contributions to that portfolio to be 91% equity, 7% bonds and 2% alternatives.
Also published last month, capital markets firm Preqin's "Investor Update: Alternative Assets H2 2019" found that 74% of investors believe equity markets are at a peak. That compared with 61% of respondents to the same question at the end of 2018. The findings came from a July survey of 177 institutional investors.
Institutional investors have been altering their equities allocations over recent months. Pensions & Investments' analysis of Investment Company Institute data showed equity mutual fund outflows of $43.7 billion in August, marking the sixth consecutive month of outflows.
- In August, the $13.3 billion New Mexico Educational Retirement Board, Santa Fe, chose a new asset allocation, which saw exposure to private equity and other asset classes increased at the expense of domestic equities — down 2 percentage points to 14% — and other investments.
- In June, the $25.8 billion New Mexico State Investment Council, Santa Fe, selected new target allocations for two of its endowment funds. Broad U.S. equity exposure and broad international equity allocation were reduced to 10% from 33% each for the Tobacco Settlement Permanent Fund. The Water Trust Fund saw its broad U.S. equity target allocation and its broad international equity target exposure fall to 10% from 15% each.
- Singapore's more than $100 billion sovereign wealth fund GIC Private Ltd.'s July annual report for the year through March 2019 showed the fund's developed market equities allocation fell to 19% from 23% a year earlier.