2021 Institutional Outlook
Natixis macro specialists discuss results of the 2021 Natixis Global Survey of Institutional Investors and break down potential risks and opportunities in the new year.
The 2021 Natixis Investment Managers Global Survey of Institutional Investors provides insights on how institutions are thinking about risks and opportunities in an uncertain year ahead. In a recent Natixis Access Series talk, Natixis Center for Investor Insight Executive Director Dave Goodsell hosted macro specialists Jack Janasiewicz and Esty Dwek for an analysis of the survey’s findings.
Here are some excerpts from the talk.
Our 2021 report suggests that few institutions think that GDP in their home country will return to pre-Covid levels in 2021. Asia is the exception to the rule, where 41 percent of respondents see a return happening before the end of next year.1 Esty, how do you see this playing out?
Jack, what we’re hearing is that institutions are looking for increased spending from consumers and businesses – an uptick in productivity.1 What matters most here?
The economic numbers have been largely driven by the goods-producing side of the equation. I think when we start to get to that reopen theme, as the economy starts to return to normal, that shift will then go to the services sector side, but the bottom line here is that spending does matter.
One of the things we saw was about 15 percent of institutions say that the stock market will signal recovery. Yet in the same survey, same group of people, we see 8 out of 10 telling us that people are mistaking a strong stock market for a strong economy.1 What do investors have to watch out for here?
That means the goods-producing side of the equation still held up, which was good for corporate profits, which is why the S&P held up. Whereas the economic backdrop struggled with lockdowns, because the services side got hit pretty hard – but the services sector really doesn’t flow through to corporate profits, and that’s the bigger driver here with the S&P 500®.
As you said, markets have been fairly resilient, but 8 out of 10 institutions we surveyed think that the market is underestimating the long-term impact of Covid-19.1 What do we have to worry about here? Are these concerns merited?
Dwek: That’s exactly it. Especially when you look at the performance in the last month or so with the vaccine news, with the US elections behind us, there’s a lot of optimism that’s embedded in the markets, and a constructive view that Jack and I still hold has definitely become much more consensus now. That consensus view is maybe what worries us.
There’s still trillions of dollars sitting in money markets, plenty of people who’ve missed the rally, so it’s going to be a question of the fundamentals holding up. So far they’re very strong, with ongoing support from central banks, which is pretty much a given at this point. We’re waiting for US fiscal stimulus, which looks like it’s going to come in the next month or so. It’s rare to see such a recovery so quickly after a crisis on the scale we’ve seen. But that’s also one of the reasons people think at some point, something’s got to give, and we’re going to have another downturn. But there’s all this cash on the sidelines, and that probably limits corrections as well.
We also see 8 of 10 institutional respondents saying that active management will outperform passive management in 2021 and 6 in 10 predicting value will outperform growth.1 Why might this be?
But we’ve started to see a rotation already with the optimism about the recovery in 2021. You’re seeing people move back into cyclicals – whether you want to call it the reopening trade, the catch-up trade, the value trade, the cyclicals trade – ultimately we’re seeing this rotation come through and a bit of a move from the US to non-US.
I think it comes back to valuations. You have some people thinking – are some of these stocks too expensive for what I’m getting? Ultimately, when you’re expecting this type of rotation, or you’re thinking that you’re going to get more dispersion in the returns, it’s better for active management. Some names have really run up this year, and people think maybe fundamentals haven’t quite followed. Investors are hoping to have that active manager pick and choose those opportunities and those winners where you’re still getting a good deal compared to intrinsic value.
Janasiewicz: I have a little bit of a different take on valuations. To me, valuations are an opinion – we all have an opinion – you might be right, I might be right. The truth probably lies somewhere in the middle. I think the overriding factor is risk appetite. Risk appetite is what drives the market. We can overshoot in significant ways on valuations if risk appetite continues to grind higher. If risk appetite continues to remain very strong, we’ll likely overshoot what a lot of people consider expensive valuations.
Esty, 20 percent of institutional respondents say they’re going to trim government debt, 30 percent say they’ll look to add investment grade corporates.1 What are your thoughts on fixed income?
One of the things we’re seeing is a large number of institutions are saying that ESG strategies are going to outperform in this market – what’s your view on that?
View the full results of the 2021 Global Survey of Institutional Investors.
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