Traditional investing strategies have outlived their usefulness and are being replaced by alternative strategies and products, according to a survey of institutional investors by Natixis Global Asset Management released today.
Institutional investors, according to the survey, are increasing alternative investments and moving more money into equities.
Natixis surveyed 500 institutional investors in 19 countries for the Institutional Investor Survey. The investors represent public and private pension funds, sovereign wealth funds, endowments and foundations, insurance companies and asset consultants with approximately $11.5 trillion in assets under management.
More than half (57 percent) of those surveyed believe traditional assets are too highly correlated to provide distinctive sources of return and 60 percent say traditional portfolio construction and diversification strategies are not ideal for most investors.
“The old road map no longer guides investors, and the new one is being drawn every day,” says John T. Hailer, CEO of Natixis Global Asset Management in the Americas and Asia. “They need more tactical help with portfolio construction and asset allocation so they can build stronger, more durable portfolios that can better withstand the cycles.”
While 89 percent of institutional investors are confident in their ability to meet their own future obligations, that confidence does not extend to individuals saving for retirement, says Natixis. Eight-one percent of the respondents from the U.S. and 70 percent globally say the average citizen will not have enough assets in retirement.
Asked to project which asset class will perform best this year, the top choice was global equities (27 percent), followed by domestic stocks (19 percent) and emerging market equities (15 percent).
The optimism about equities is reflected in most investors’ allocation plans for 2013, as 58 percent plan to increase their exposure to global stocks, 46 percent will add to their emerging market equity holdings and 42 percent will increase their weighting in domestic stocks, the survey indicates.
Lower yields have made the risk-reward tradeoff of bonds less appealing for many investors, as 43 percent say they plan to scale back on their domestic bond exposure in 2013 and 42 percent will reduce their global bond allocations.
Institutional investors have an above-average comfort level with alternative assets such as hedge funds, real estate, private equity and commodities, says Natixis. A large majority (85 percent) report that they own alternatives, and 75 percent say it is essential to invest in these strategies in order to diversify portfolio risk.