Tue, Jul 25, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Towers Watson survey: fund managers more optimistic on equities, not so on world growth and bonds

Tuesday, February 19, 2013
Opalesque Industry Update - Fund managers have turned more optimistic about the prospects for equity returns while remaining negative on world growth and medium-term government bonds, according to a global survey of investment managers conducted by professional services firm Towers Watson. The survey also highlights the most important issues investment managers expect to face in 2013 as government intervention, global economic imbalances and sovereign debt defaults, with inflation being a significant concern in the next five years.

Robert Brown, chairman of Towers Watson’s global investment committee, said: “During the last quarter of 2012, when this survey was held, the move back to policy easing and consequent improvement in global financial conditions improved growth prospects, with the US and China responding the most. In the US, growth is now well above its trend because financial conditions are very easy and those sectors that respond most to low interest rates have improved balance sheets. This is not the case in Europe where those sectors, typically households and construction, are less able to respond to this stimulation. Growth in China has also improved, driven by modest amounts of monetary stimulation and increases in government investment spending. Other emerging regions have been slower to pick-up, although this may just reflect a small lag as the improvements in external demand and production work their way through into improvements in domestic incomes. So while these are positive signs which will have influenced managers’ outlook for 2013, a sustained global economic recovery is likely to remain fragile, set as it is against the unavoidable situations of extreme indebtedness in the Western world; on-going double- and triple-dip recessions; and weak and uncertain prospects for growth in many markets.”

The global survey shows that guarded optimism has returned to this influential group of investment managers, witnessed by their view that institutional investors’ are expected to either modestly increase risk or keep their portfolio risk level the same in 2013. The survey, which includes responses from 169 investment managers (the majority having institutional AuM above US$5 billion and retail AuM above US$1 billion) indicates that a significant number of them still expect a sovereign debt default in the Eurozone and continuing weak fiscal situations in the US, UK and Japan.

Robert Brown said: “Eurozone countries face highly political long-term structural reforms, as well as fiscal austerity, which are proving difficult to implement, pushing out further any real global recovery. Politics have become increasingly enmeshed in the financial world since the global economic crisis began and investment managers have again identified this as the top issue for them. There are some positive economic signals coming out of the US which, even though driven largely by government policies, seem to be reflected in managers’ view that the US is the region with the most rewarding investment opportunities in 2013, followed by China, the Eurozone and Frontier markets. While government policies are clearly intended to stimulate growth and address the massive U.S. fiscal deficit, we see the risk skewed towards deflation rather than inflation. That said, the housing market still remains key to a US recovery if the headwind of negative equity can be overcome.”

In contrast to last year, managers expect better equity returns in 2013 in most markets than they did in 2012, with the exception of the US and Australia, where equity return expectations are the lowest they have been since the survey started in 2008. In addition, managers anticipate equity returns to remain muted over the longer term, but indicate a preference towards US and China and away from the Eurozone. They expect equity markets in 2013 to deliver returns of 7.0% in the U.S. (compared to 8.0% in 2012); 6.0% in the U.K. (5.0%); 7.0% in the Euro zone (6.0%); 6.0% in Australia (7.0%); 6.0% in Japan (5.0%); and 10% in China (7.8%).

The survey also shows that expected equity volatility for 2013 is in the 15% to 20% range for major economies, somewhat lower than previous years but still elevated compared to longer-term averages. Most managers in the survey hold overall bullish views for the next five years on emerging market equities (83% vs. 75% in 2012), public equities (78% vs. 72%) and real estate (57% vs. 48%). For the same time horizon, the majority remain overall bearish on nominal government bonds (80% vs. 77% in 2012), money markets (47% vs. 43%), investment-grade bonds (47% vs. 29%) and inflation-indexed government bonds (47% vs. 47%).

Robert Brown said: “Volatile markets and heightened risk awareness continue to make asset allocation very challenging as investors balance priorities like long-term de-risking, short-term market opportunities, rebalancing, and maintaining a strategic asset allocation mix. In terms of specific asset classes, we think that government bonds do not represent great value at the moment and that equities represent relatively better value. However, it is challenging to know what to do about it when the goal for many funds is to reduce risk overall and diversify from existing equity holdings. So many funds are buying fewer bonds than before, and those which are considering adding risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities.”

According to the study, real GDP growth expectations for 2013 continue a downward trend and range from just above 0% in the Euro zone (0% in 2012) to 7.5% in China (8.0%) followed by 2.5% in Australia (3.0%), 2.0% in the US (2.0%), 1.0% in the UK (1.0%) and 0.9% in Japan (1.5%). With the exception of China, managers’ ten-year GDP growth forecasts are slightly above their one-year view but are below historical trends. The survey shows that managers expect unemployment to remain a tough challenge for some Western economies, especially for the Eurozone countries implementing fiscal austerity measures. According to managers, expansionary monetary policies are expected to hold in 2013, with exceptionally low interest rates in some Western economies, but to gradually tighten in the years ahead. Inflation is viewed as a moderate near-term risk, with some very concerned about long-term inflation risk in both the US and Europe.

Turning to ten-year government bond yields, in 2013 managers predict the continuation of a downward movement of yields to historic lows reflecting persistent economic weakness and continued central bank asset purchases. Predicted yields on ten-year government bonds have fallen in every market since the 2011 survey, with the US falling from 3.8% to 2.0%, mirrored by the UK (4.0% to 2.0%), the Eurozone (3.5% to 2.0%), Australia (6.0% to 3.3%), Japan (1.6% to 1.0%) and China (5.0% to 3.8%).

Other findings from the survey include:

• In 2013 managers expect unemployment to be lower than in the recent past in the U.K. (7.7% vs. 8.5% in 2012) and the U.S. (7.5% vs. 8.5%) but higher in Euro zone (11.5% vs. 10.6%)
• The managers’ consensus is that crude oil is expected to rise at a fair pace reaching US$90 a barrel this year (they predicted US$100 for 2012) and US$100 a barrel in the next ten years - significantly down from last year’s ten-year prediction of US$120
• Managers expect major currencies to maintain roughly stable values despite the uncertain economic environment.

Press release

Towers Watson is a global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. www.towerswatson.com

Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Launches - Crypto boom: 15 new hedge funds want in on 84,000% returns, Crypto madness is striking VCs as Union Square analyst leaves to start new fund[more]

    Crypto boom: 15 new hedge funds want in on 84,000% returns From Forbes.com: With 43 projects raising $1.2 billion in initial coin offerings since May 1, according to Nick Tomaino's The Control, and with stratospheric returns for so many ICOs -- 82,000% for Ethereum, 56,000% for IOTA, 44,

  2. FinTech - The machines are coming... Elon Musk's grim warning, Tezos' $232 million ICO may just be the beginning, A gentle introduction to Initial Coin Offerings (ICOs), Billion dollar tokens, ICOS & crazy market swings WTF is going on!?, How AI is changing the way we invest, How the tech revolution is bringing flip-flops and beanbags to Wall Street, A 'machine-learning' approach to venture capital[more]

    The machines are coming... Elon Musk's grim warning From Tenplay.com.au: Tesla chief Elon Musk has called on US Governors to take 'decisive' action to curtail "the greatest risk we face as a civilization": Artificial Intelligence, or AI. Speaking at a meeting of the National Governor Ass

  3. News Briefs – Sears inks $200 million credit line from CEO Eddie Lampert's hedge fund, shares jump 9%, Rwanda: Global hedge fund to increase investments[more]

    Sears inks $200 million credit line from CEO Eddie Lampert's hedge fund, shares jump 9% Sears Holdings has landed a fresh line of credit, valued at $200 million, from its CEO Eddie Lampert's hedge fund, the retailer said Monday. Sears' stock climbed about 9 percent higher Monda

  4. Despite current limits, robo-advisors will be preferred investment solution for retail, gain importance for affluent and high net worth[more]

    Matthias Knab, Opalesque: Flynt, a Swiss FinTech focusing on proprietary technology platform for private and institutional clients, has published a brief paper on "Investing in the world of robo-advice and passive instruments". As investors will become more reluctant to pay for investment advi

  5. Investing - Hedge fund CQS favors structured credit, Direct lending funds' fading all-weather appeal, Funds hunt for cracks in most-prized US shopping malls[more]

    Hedge fund CQS favors structured credit From BArrons.com: A hedge fund manager that can invest across the investment landscape says in his latest semi annual report this week that he's finding opportunities in structured credit -- particularly the shorter term, floating rate kind. Exampl