Cash and actively-managed alternative assets look to be the favoured strategies for the year ahead, according to a new global survey of institutional investors.
The BlackRock ‘Global Institutional Rebalancing Survey’, which canvassed 224 large investor clients representing a collective US$7.4 trillion, found 65 per cent of respondents planned to keep cash levels static during 2018.
However, the survey found a significant uptick in demand for active management, particularly in alternative assets led by infrastructure and renewables (with 60 per cent planning to increase allocations), alternative credit (58 per cent), and real estate (43 per cent).
In the credit sector, almost 40 per cent of respondents planned to invest more in emerging markets as ‘core and core plus’ strategies continued to fall out of favour (down 28 per cent in the survey).
About 20 per cent of those surveyed also planned to lift exposure to hedge funds while almost a quarter expected to switch to active equity strategies from index approaches (as 16 per cent said they would swing the other way).
While institutions overall were shying away from equities the BlackRock study found this trend varied considerably across regions. For example, about 40 per cent of respondents in US and Canada planned to cut equity exposure in 2018 “largely driven by corporate pension plans”, BlackRock says. However, further south in Latin America a similar proportion of respondents (42 per cent) said they would increase share investments this year. Emerging markets and Middle East investors were slightly bearish on equities with 5 per cent looking to downsize exposure to the asset class.
In a release, Edwin Conway, global head of BlackRock’s institutional client business, said the trend to active strategies and alternatives “is a recognition that global risks persist and of the value of portfolio managers’ skill”.
“Despite synchronized global growth, our overall return expectations for most segments of institutional investors are well below their return targets,” Conway said in the statement. “Maintaining current cash levels and increasing allocations to active managers may seem counterintuitive. But for many of our clients, it’s their two-pronged strategy for navigating risk and potentially volatile markets.”