Insurers think that equities, in particular US and global equities, offer the best chance of good performance in 2015, according to a survey.
Natixis Global Asset Management polled 642 institutional investors, including 91 insurance companies, for their thoughts on which asset class would perform best in 2015.
Anticipated top performers in 2015 |
|
| Global equities | 12% |
| US equities | 12% |
| Emerging market equities | 11% |
| Private equity | 10% |
| Real estate | 7% |
| European equities | 6% |
| Asian equities | 5% |
| Hedge funs | 5% |
| Global fixed income | 5% |
| Emerging market debt | 5% |
| Macro/absolute return | 4% |
| Gold/precious metal | 4% |
|
Source: 2014 Global Survey of Institutional Investors, |
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Some 46% selected equities, with US and global stocks favoured over European and Asian equities. The opinions of the subset of insurers were similar to the overall opinions expressed by the institutions, the company said.
"I think we will see insurers use a little bit more of their risk budget to invest in equities, but it will not be a massive flex," said Euan MacLaren, head of UK/Ireland institutional business at Natixis.
Alternatives to traditional investments, such as private debt, private equity and real estate will also be attractive to insurers as they seek to improve returns.
Fixed income will remain the bulk of insurers' portfolios, but within the asset class there may be moves to seek greater returns while not busting the risk budget, by investing more cleverly in gilts, corporate debt, emerging market debt, bank loans and securitisations.
"All five of those areas should be available to insurers. They should be able to move quickly across the entire fixed income market," MacLaren said.
The poll of institutional investors revealed that they would need to hit above-inflation returns of 6.9% in order to meet their long-term goals, somewhat above the 4% or so that insurers currently return.
Meeting total return objectives was ranked alongside managing volatility and managing tail risk as the top challenges that investors face.
Among the groups of investors, insurers were the biggest proponents of the growth potential for socially responsible investing. The survey found that almost half of institutions apply environmental, social and corporate governance (ESG) screens to their investments, as these factors help them mitigate idiosyncratic risks such as loss of assets from lawsuits, social discord and environmental disasters.
The use of ESG screens seems to be replacing the earlier concept of socially responsible investment, which tended to avoid excluding whole sectors, such as tobacco or pornography. "In today's world, ESG companies should deliver growth," MacLaren said.