2019 Institutional Outlook
Dave Goodsell interviews Chief Market Strategist Dave Lafferty for his thoughts on key findings out of the Global Survey of Institutional Investors.
Institutional investors predict the volatility that rocked markets across the globe at the end of 2018 will continue into the new year, and expect that the long-running US bull market will soon come to an end – if it hasn’t already.
Their outlook for the year ahead? They foresee that both equity and bond volatility will be up, and interest rates will rise. Will that make them change their allocations? Not necessarily.
Despite the many potential market challenges, six in ten say institutional investors are prepared to handle the risks in 2019 – and aren’t ready to dial back their average long-term return assumptions of 6.7%. And even with potentially stronger headwinds, 77% of respondents believe those assumptions are realistic.
This is driving how they are looking at portfolio allocations and sector calls for 2019. They see risks ahead with rising rates and volatility spikes. But while they are making some shifts, they are largely holding steady – for now. Our most recent survey of institutional investors reveals their outlook for the coming year, as well as nine trends driving their longer-term investment strategy.
The transition from low yields to rising rates
- 75% are concerned that prolonged low rates have created asset bubbles.
- They are more worried about the pace — rather than the size — of interest rate increases.
- 56% believe rate hikes will have a negative impact on performance.
Volatility is the new reality
- 52% surveyed say volatility is a portfolio risk.
- The same number say dispersion (variances in the co-movement of security prices) will increase in 2019, which is one reason that many may be focused on active management.
Active management matters more
- 79% surveyed say market conditions favor active management in 2019.
- 78% of institutional decision makers are willing to pay a higher fee for outperformance.
The expanding role of private assets
- 72% say the returns of private equity are worth the liquidity risk.
- 60% say diversification is one of the main reasons they invest in private assets.
Asset bubbles are expanding
- Cryptocurrency – 64% of institutions say there is a cryptocurrency bubble. But with Bitcoin declining 73% and Ethereum declining by 85% since January,1 it may already have burst.
- Technology – 45% think there is a tech bubble. Did the Q4 sell-off in FAANG stocks help equalize the pressure - or is a bigger explosion yet to come?
- Stocks – 41% of institutions see a stock market bubble on the horizon.
Political upheaval means market upheaval
- What’s threatening global financial security? 44% say geopolitics, while 37% point to trade disputes.
- 77% say geopolitical events will have a negative impact on portfolio performance.
Who will foot the bill on public debt?
- Six out of ten believe the growing debt crisis poses a threat to global financial security.
A new crisis is lurking in the wings
- 62% public debt
- 48% asset bubbles
- 44% geopolitics
- 37% trade disputes
- 22% aging populations
Keep calm and invest on
Read the full Report
Learn more about what’s keeping institutional investors up at night ten years after the global financial crisis.
Natixis Investment Managers, Global Survey of Institutional Investors conducted by CoreData Research in October and November 2018. Survey included 500 institutional investors in 28 countries.
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