December 5, 2019
Despite record highs in major market indexes around the world, institutional investors are apprehensive about market prospects for 2020, according to a global survey of institutional investors released today by Natixis Investment Managers.
The top portfolio concern cited in the survey is increased volatility, and most respondents see no relief in sight from trade and low yield risks. But the firm noted that institutional investors aren’t making big changes to their portfolios, and instead, are waiting out the current cycle until they’re comfortable enough with market conditions to make any portfolio moves.
Additional findings of the survey include:
- Nearly three-quarters (73%) of institutional investors expect ongoing trade disputes to hurt their investment performance; 67% are anticipating pain from slowing global growth and 59% believe a hard Brexit will hamper performance in 2020.
- 76% believe that persistently low rates have led to asset bubbles; yet, with rates so low for so long, more than half (54%) worry that central banks do not have the tools they need at their disposal to manage through any new market challenges.
- 89% are concerned that the explosion of public debt will have negative consequences for global financial security.
- More than half of institutional investors (58%) believe the next global financial crisis will occur within one to three years.
“Institutional investors have been steadily fortifying their portfolios in anticipation of inevitable changes in the market cycle that could make 2020 a bumpy ride for unprepared investors,” said David Giunta, CEO for the US at Natixis. “Despite a substantial amount of uncertainty next year, institutional investors remain focused on their long-term objectives and continue to see actively managed, diversified portfolios as a prudent path to outperformance.”
Overall, institutions expressed no distinct sector preferences for 2020 in the survey. Instead, they split projections for outperformance and underperformance for most sectors. There are two exceptions, though: healthcare and information technology. Low rates, slow growth and a range of other factors add up to moderate market performance.
The 2020 U.S. presidential election also weighs heavy on the mind of many investors. Approximately 64% of institutional investors surveyed agree that the campaign cycle itself will be a significant source of volatility next year. Investors are fairly split on how the markets would react to a change of administration in the White House and/or Democratic control of both houses of Congress. In the meantime, 54% think the ongoing impeachment process will have a destabilizing effect on the markets.
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