Investor expectations are at an historical low with nearly three quarters (73%) of professional investors anticipating a recession within the next two years, according to research.
Boston Consulting Group (BCG) questioned 260 investors about global equity markets and found that expectations for the level of total returns had fallen to 5.6% - the lowest reading since the first of these BCG surveys in 2010.
Recession expectations have increased markedly in the last 12 months, rising to 73% from 53% a year earlier. Also, fewer investors expressed bullishness about the market for the next 12 months: a third, as opposed to nearly a half in the previous year.
The study, ‘Investors brace for a downturn and look to the long term’, also asked respondents for their views on shareholder value creation and found that the vast majority of investors (82%) wanted companies to focus more on preserving long-term value in the aftermath of a likely recession as opposed to targeting short-term results.
“Many think management teams aren’t doing enough in this regard,” said Alexander Roos, a BCG senior partner and co-author of the report.
The survey’s respondents claimed that just 50% of the companies they invest in have aligned their business and investment strategies and that a similar number (48%) need to be more aggressive about pursuing R&D in order to create value.
Furthermore, 43% of surveyed investors see significant room for improved capital allocation, especially organic reinvestment, while 37% want to see better strategic development and planning and 38% say companies need to improve their risk management processes.
Two thirds (66%) were spending more time on their investment decisions in order to prepare for a recession. They also said they were taking a more value-based approach and exiting their investment positions more quickly.
In addition, close to half (48%) had increased their environmental, social and governance (ESG) factors in the belief that they drive long-term performance.
“Investors do exactly what they expect from the companies they invest in,” said Hady Farag, an associate director at BCG and co-author of the report. “They take fewer short-term risks by being more diligent, investing for value over growth, and getting out of investments more quickly. At the same time, they look at the long-term fundamental attractiveness of the companies they invest in, increasingly also through an ESG lens.”
The survey canvassed 260 investors, 80% of them portfolio managers, and was carried out in October 2018.
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