Major asset owners may be in two minds about their investment strategy, torn between the general forecast of a moderate recovery in the economy and the potentiallyadverse effect of Federal Reserve tapering but they are better placed to manage these risks and are showing signs of a greater risk appetite in their asset allocations.
According to a Pension Fund Asset Allocation Survey by independent investment consultancy bfinance that canvassed European and North American asset owners with a combined value of $275 billion, more than 40% of respondents have an action plan for tapering.
In terms of investment outlook, there is a continued interest in alternatives as a source of diversification, especially emerging market debt and property while there is a fading interest in credit. Price volatility is seen as the major source of risk and smart indices and absolute return strategies are seen as the best way to manage this volatility with allocation to alternative indices set to rise from 47% of current investors to 59% during the course of 2014.
Meanwhile the latest Risk Rotation Survey from ING Investment Management shows that the majority of institutional investors (56%) increased their risk appetite over the final quarter of 2014 with only 11% doing the opposite, a decline from the 18% the previous quarter. In terms of asset allocation, equities was the most popular asset class (73% up from 64%) followed by real estate (45% up from 34%).
In terms of the greatest threats to investment portfolios, the removal of quantitative easing and interest rate rises were cited as ‘very significant’ by 19% with the Eurozone crisis remaining a concern for 37%, albeit lower than in the previous quarter (54%).
The findings were heralded as a “promising sign” and the “most synchronised global recovery since 2009” by ING IM’s head of strategy, multi-asset, Valentijn van Nieuwenhuijzen.
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