Investment managers are positive about equity returns for 2013 and expect institutional investors to either modestly increase risk or keep portfolio risk at the same level.
Equity market returns are expected to increase, with a rise of 5% to 6% in the UK and Japan, and 6% to 7% in the Eurozone.
The outlook on China is the most favourable with an expected return as high as 10%, a survey by Towers Watson, a consulting firm, shows.
In contrast, predictions for the US are down from 8% in 2012 to 7%. However, there are suggestions of an overall preference towards the US and China and away from the Eurozone.
The survey also signals that investors anticipate a reduction in equity volatility for major economies, though at 15% to 20% it is still high compared to longer-term averages.
Five-year predictions for volatility in emerging market equities, public equities and real estate have increased. The expectation for emerging markets, for example, is 83% vs. 75% in 2012.
Robert Brown, chairman of Towers Watson’s global investment committee, says that although investors believe government bonds do not represent great value and equities are relatively better value, problems exist about how to move forward when the goal for many funds, he says, is to reduce risk overall and diversify from existing equity holdings.
He also says that investors that are considering adding risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities.
The research reveals the persistence of concerns about world growth and medium term government bonds, with “a significant number” of managers anticipating a sovereign debt default in the Eurozone.
Towers Watson surveyed 169 investment managers during the final quarter of 2012.
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