While some of the world's largest investors are confident as we head into 2022, unprepared individuals should be cautious
Your clients should be prepared for issues that could disrupt their investments in 2022, according to a survey of large investors.
While institutional investors are confident of their growth in the year ahead, they are concerned that individual investors may face several significant challenges.
Respondents to the 2022 Natixis Institutional Investor Market Outlook expect higher volatility in stocks (75%), bonds (63%) and currencies (56%) in 2022.
But while these large investors are anticipating long-term returns of around 7%, previous Natixis research found that individual investors are betting on 14.5% which is 174% more than the 5.4% that financial professionals think is realistic.
The survey reveals the view that individuals have been engaging in riskier investments since the start of the pandemic, while 64% believe that easier access to trading could ultimately threaten the retirement and financial security of many retail investors.
Dave Goodsell, executive director, Natixis IM Center for Investor Insight, said that individual investors may have managed to do well in 2021 even while ignoring the basic fundamentals of investing.
“2022 may not be as kind, especially if investors have taken on too much risk, or are overly reliant on passive, index funds,” he warned. “They may want to take a cue from some of the largest, most sophisticated investors in the world, who call for active management, disciplined rebalancing and a block and tactical approach to portfolio positioning to be successful next year.”
More than half of the contributors to the Natixis poll said that reliance on passive investments is one reason for investors ignoring market fundamentals and around half believe the popularity of passives has further distorted relative stock prices and risk-return trade-offs.
Next year’s risks
Inflation, interest rates, valuations and volatility are viewed as the big portfolio risks for 2022.
Just 13% of respondents said that market performance should be taken as an indicator of economic health.
The survey also revealed:
- 81% of institutional investors think low interest rates have distorted valuations
- 71% believe current valuations don’t reflect company fundamentals, so much so that 21% think valuations don’t even matter anymore
- 71% say the stock market’s current rate of growth is unsustainable, and nearly as many (68%) predict the bull market will come to an end once central banks stop printing money
Four in ten institutional investors believe that digital assets are a legitimate investment option.
However, 62% think the meme stock phenomenon will continue to create risky bubbles and cryptocurrencies rank as the top contender for a major correction in 2022 with 72% of institutions saying they are not an appropriate investment for most retail investors anyway.
Institutional outlook
Aside from their views on retail investments, the research paints a cautiously optimistic picture for the institutional investors themselves.
“Institutional investors are clearly telling us they think the market will look very different next year than what it does today, and they are positioning their portfolios to withstand whatever is thrown at them,” said Liana Magner, EVP and Head of Retirement and Institutional in the US. “While inflation poses a number of long-range economic issues, interest rate policy presents institutional teams with immediate investment challenges. The upside is an expansion of investment opportunities and emerging growth potential in a market ripe for active management.”
More than half of respondents believe that many aspects of life will return to how they were pre-pandemic in 2022, despite the current threats of the Omicron variant.
Other findings include:
- 62% of institutional investors expect pent-up demand for big-ticket items to be a significant driver of growth in 2022
- 41% overall, and 46% in North America., expect consumers to spend more next year, and 22% see high levels of “revenge spending” as people splurge after a long period of isolation and restrictions
- 85% expect the majority of employers to move forward with a hybrid work model, pointing to a broad return to the office for many workers
- 84% think that major supply chain disruptions would greatly hinder the pace of economic growth
- Far fewer (48%) think new SARS-CoV-2 variants would slow the economic recovery, a reflection that the world may be learning to live with COVID as an endemic.
The full survey is available at: https://www.im.natixis.com/intl/research/institutional-investor-survey-2022-outlook
