Natixis Investment Managers poll reveals the strategies institutions are planning for next year and what they see as the biggest risks
More than three quarters of institutional investors are expecting average returns of 7.9% in 2023, despite several challenges.
A poll by Natixis Investment Managers reveals that respondents, with collective AUM of US$20.1 trillion, are expecting challenges, with 6 in 10 saying recession is inevitable, rising to at least 80% in all regions except Asia.
The survey included more than 500 institutional investors in 29 countries who represent public and private pensions, insurers, foundations, endowments and sovereign wealth funds around the world.
War is seen as the top threat as next year approaches with central bank policy errors, and trade issues (especially US-China) also concerning respondents.
More than 7 in 10 are unsure if inflation can be brought under control by central banks alone with almost half believing an engineered soft landing is unrealistic – but nearly two thirds believe that stagflation is a bigger risk in 2023.
Growth opportunities
Traditional fixed-income investments are seen as ripe for growth, with interest rates still rising, and 56% are bullish on the bonds market for the year ahead.
Among other trends that institutional investors are hoping will position their portfolios for success in an unfamiliar market environment include private markets providing some relief from bear markets, alternatives answering the call for yield, and blockchain looking more valuable than cryptos.
Nearly half of respondents plan to increase allocations to investment grade bonds, while 63% say they will look to short-term bond ETFs to counter duration risk.
However, 36% of investors also cite liquidity concerns, almost triple the number (13%) that cited this a year ago.
Sector groups marked for outperformance in 2023 include energy, health, and financials.
Survey participants were split roughly down the middle on whether they are bullish or not on stocks, but equities will be second placed in terms of portfolio allocation (average 34%) behind fixed-income (37%) and alternatives (18%).
Two thirds believe that 60% allocation to equities, 20% to fixed-income, and 20% to alternatives will perform better than a traditional 60/40 split.
Global recovery
Survey respondents will be looking at consumer and business behaviour as a key factor to judge economic recovery.
Consumer spending, business spending, employment, and productivity will be monitored closely for signals.
The full report is available at im.natixis.com
