Institutions signal shift to ‘aggressive’ strategies

Chess boardMany investment managers believe their clients' investment strategies will become more aggressive over the next year, a finding that jars with one of the largest investment consultancy's outlook for equities.

Tower Watson, which carried out the survey, gave equities a ‘neutral’ rating in January, down from ‘moderately attractive’ a year before, but finds in its global survey an increase in the amount of asset managers that expect the strategies of their clients to be more aggressive in the next year. This is an increase of one third – from 34% to 44% – from the survey a year ago.

The survey included responses from 128 investment managers, the majority having institutional assets under management above $5 billion (€3.6 billion) and retail assets above $1 billion.

Robert Brown, chairman of the Towers Watson’s global investment committee, says: “An interesting surprise to us is the increase in survey participants who believe that investment strategies of their institutional clients will become more aggressive next year.  This catches our attention as we rate equities ‘neutral’ as of January 2014 as opposed to ‘moderately attractive’ a year ago, reflecting the change in our view of valuation levels year over year. “

He also highlighted the capital flight in certain jurisdictions, such as Turkey and South Africa, in response to shifting expectations around Federal Reserve tapering. 

The risk-on posture that some expect calls for high selectivity, Brown says.

However, he also notes that the survey findings released today are based on research during the last quarter of 2013, when developed market equities had performed very well, leading to improving consumer confidence.

Towards the end of the year, there was revitalised growth in the US and China, as well as growth acceleration in the UK and Japan.

As far as asset managers’ views on the economy goes, during the next five years, the majority of asset managers expect the world’s largest economies to experience mild growth, with the exception of the Eurozone where they expect unemployment to remain in the low double digits in the short term and at a relatively high 9.5% in the medium term.

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