Institutional investors worldwide plan to invest more in stock and lower their holdings in developed market sovereign debt as they overcome years of risk aversion, according to research by Allianz Global Investors.
About 30 percent of institutional investors say they plan to buy more international equities over the coming 12 months while only 6 percent want to reduce their holdings, according to the AllianzGI RiskMonitor survey. Only 8 percent plan to add more sovereign debt from developed markets while 14 percent want to shed it.
‘The ‘great rotation’ has been talked about at some length over the past two years, yet action among institutions has been slow as risk aversion and inertia make their impact,’ says Elizabeth Corley, CEO of Allianz Global Investors, in a press release. ‘The findings of our survey suggest investors are now showing an increased appetite for risk-bearing assets, specifically equities. In a low-interest-rate environment it is essential that institutional investors take action to reallocate their portfolios toward risk-bearing asset classes, and it is encouraging to see that beginning, at least in intention.’
Among investors that plan to raise their equity holdings, 23 percent say they will boost their investments in private equity while 5 percent plan to reduce it. About 11 percent aim to buy more developed market sovereign debt while 36 percent want less, and 10 percent want to increase their cash holdings while 28 percent plan to lower them. The survey also shows that investors intend to boost their holdings in a range of alternative investments, with 18 percent aiming to make more direct real estate investments, 15 percent planning to allocate more to private equity and 14 percent seeking to raise their hedge fund investments.
Interest rates pose the greatest risk to investors’ plans in the coming 12 months as central banks are expected to gradually start raising rates after years at ultra-low levels. In fact, about 12 percent of investors cite interest rates as their main concern. Equity market risk follows closely, with 11 percent, after recent rapid stock gains.
‘While investors seem to express confidence in the management of a gradual rise in interest rates by central banks, the stakes are clearly high as these banks raise rates over the next several quarters,’ the study authors write. ‘Indeed, the survey’s high rankings of interest-rate and equity-market risks suggest a misstep in monetary policy that brings volatility to the fixed income or equity markets would be especially threatening to portfolio performance.’
