Investors around the world are concerned that the markets are poised for troubles ahead. So they are planning defensive strategies for their portfolios as they look to 2021, according to a Natixis survey.
The broad majority of institutional investors believe the global economy has yet to reckon with the consequences of COVID-19, according to a Tuesday report. Eight out of 10 allocators believe gross domestic product (GDP) levels will not return to pre-COVID-19 levels until 2022 at the earliest.
Market and sector corrections are on the horizon, investors say. Four out of 10 investors believe the stock market, real estate sector, technology sector, or cryptocurrency will suffer drawdowns in 2021, while another 20% to 30% of investors say bonds, initial public offerings (IPOs), and special-purpose acquisition companies (SPACs) will encounter corrections.
In response, more than half of investors (53%) are planning to take a defensive stance, while 47% plan to use aggressive strategies. About a third of investors expect hedge funds will help manage risk, versus better returns, in their portfolios. Eight out of 10 investors say equity factor diversification is important to consider.
Allocators don’t plan to change their asset allocations, but they do want to rearrange investments within them. In equities, which investors expect will remain a 36% allocation in their portfolios, about a third of investors are expecting to decrease exposure to US equities in 2021 in favor of European, emerging market, and Asia Pacific stocks.
In fixed income, an expected 40% average allocation in portfolios, some investors expect they will focus more on investment grade corporate debt, securities debt, and green bonds next year.
In alternatives, investors will slightly dial up portfolio allocations to 17% from 16%, and many expect that they will increase exposure to private debt, infrastructure, and private equity.
As private assets continue to grow in significance in investor portfolios, institutional investors agree that they will play the role of a safe haven in the event of a correction, the report said. But other concerns remain for the asset class, such as liquidity risk and too much money chasing too few deals.
About 500 institutional investors at corporate and public pension funds, endowments and foundations, and sovereign wealth funds were surveyed for the Natixis Investment Managers report in October and November.
Respondents came from North America, Latin America, the United Kingdom, Europe, Asia, and the Middle East.