What are institutional investors betting on for the next 12 months?

Survey of institutional investors found most are ready for a downturn

What are institutional investors betting on for the next 12 months?
Steve Randall

There are continued rumbles of a market downturn but most large investors say they are prepared; and they have revealed what investments they believe are most likely to provide the best returns over the next 12 months.

A survey of institutional investors by global wealth manager Wilshire shows that around 95% of the 75 investors it surveyed say they are at least somewhat confident in their organization’s readiness to successfully navigate market volatility.

While 39% said they are very confident and 56% are somewhat confident, just 5% said they do not feel very confident.

However, compared to a similar survey in 2007 ahead of the financial crisis, just 29% feel “far more prepared.” More than half of institutions (58%) feel more prepared than in 2007 and the remainder (13%) reported feeling the same level of preparedness as 12 years ago.

“If history teaches us anything, it is that markets do not go up forever in a straight line, so it is reassuring that many institutions have been proactive in their preparation for this inevitability,” said Steve Foresti, Chief Investment Officer of Wilshire Consulting. “However, with roughly six-in-ten institutions feeling anything less than far more prepared for a bear market than in 2007, and the same number feeling only somewhat confident about weathering volatility, there’s opportunity for improvement.”

What they are backing
The institutional investors polled said that equities are still a key focus with 41% of respondents citing US or emerging market equities to bring about the greatest market return over the next year (21% and 20% respectively).

Fixed income was the next most highly cited investment opportunity, with 29% of respondents choosing international and US fixed income as creating the greatest opportunity.

One-fifth believe alternatives will generate best market returns and 10% will look to real estate.

But respondents are watching geopolitics, especially the US-China trade dispute, as the largest potential trigger of a sustained downturn.

“While it is nearly impossible to predict what might trigger a sustained market correction, institutions can make sure their portfolios are well diversified to account for various risks and market scenarios,” added Foresti. “Since investor perceptions of preparedness for market turbulence can often differ from actual readiness, running portfolio stress tests can be a valuable technique to pre-experience an institution’s preparedness.”