More than three-quarters of US institutional investors expect interest rates and inflation to remain elevated for at least the next 12 months, putting fixed income investments in prime position to generate the best returns in 2024.
A new report from CoreData also reveals that these organizations are growing weary of asset equity strategies that fall short, with four in ten off-boarding those that don’t hit the mark. A similar share raises their hurdle rates for risky assets.
The current exchange rate and inflation environment affects low-risk strategies with attractive risk-free returns available. Respondents acquired strategic allocations to government bonds/cash-like investments (43%), curbing new investments in risk assets (43%), and trimming their exposure (30%).
Not that active strategies are off the table. In fact, 54% of survey participants expect their actively managed equity strategies to deliver strong outperformance in the coming year, while expectation for equities overall is muted with 35% bullish on US stocks in the next three months compared to 45% bearish. Only 10% are bullish on Chinese stocks over the same period versus 78% bearish.
TECH STOCKS OVERVALUED
Investors rate the economic outlook, rating expectations and valuations as their top three drivers of their outlook for equities over the next three months.
Seven in ten respondents say tech stocks are overvalued and a catastrophic market event is also a growing concern with 47% saying a tail risk event is more likely than average. Eight in ten say quality will drive performance in the next three months.
“These results show that a 5% risk-free return has completely changed the calculus for institutional
investors,” said Michael Morley, US Research Director at CoreData. “The trend of risk-free portfolios
and consolidating active investments with high conviction managers are likely to accelerate, putting a
a painful pressure on the industry, which is already facing a low-beta environment.”
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