Pension funds and other money managers are cautiously optimistic that stocks will provide the best returns next year as long-term bonds face pressure from an expected rise in interest rates.
That’s one of the key findings in a survey of institutional investors by Natixis Global Asset Management, a Boston-based investment company that oversees $894 billion. Slightly less than half of money managers expect stocks will be the strongest asset category in 2015, with U.S. equities ranking the highest, the study found.
“Even as they perceive stocks as next year’s best investment category, institutional investors are cautious,” John Hailer, president and chief executive officer of Natixis Global Asset Management in the Americas and Asia, said in a statement. “Investors are more likely to add to income-generating investments or to value investments than to more risky assets. They want to avoid being upended by a big swing in markets.”
The S&P 500 has come under pressure since climbing as much as 12 percent in 2014 to reach a closing high of 2,075.31 on December 8. Those gains shrank to 7 percent as of Monday with stocks selling off on worries of slowing global growth and oil extending its plunge from a June high.
The Federal Reserve this week may indicate that it's moving toward raising interest rates next year for the first time since June 2006. Fed Chair Janet Yellen will speak to reporters after the central bank publishes its policy statement on Wednesday.
Natixis found that two-thirds of money managers expect difficulties in the next three years from rising interest rates, and 81 percent said volatility will be a challenge. They also cited geopolitical events, European economic problems and slower growth in China as top concerns.
The most popular ways to contend with rising rates are to shift money into shorter-term bonds from long-term debt, reduce exposure to fixed-income securities and boost investments in alternative assets, such as private equity, the survey found. Natixis surveyed 642 institutional investors that altogether manage $31 trillion for investors.
Meanwhile, a separate survey showed that investors are optimistic about private equity and are reconsidering their allocations to hedge funds, according to a report by Reuters.
Ninety-three percent of investors estimate annual net returns of more than 11 percent from their private equity portfolios for a three- to five-year horizon, the survey showed, up from 81 percent of investors two years ago.
"What you've seen over the last two years is distributions from the private equity portfolio have been very, very strong, which will give investors a cause for optimism," said Michael Schad, Partner at Coller Capital, according to Reuters.