Natixis: Managers Tap EM, PE As 2017 Winners Amid Volatility Fears

Dec 13 2016 | 11:57pm ET

Institutional investment managers will shift more capital towards alternative investments next year and believe emerging markets, private equity and high-yield bonds will be the biggest winners in 2017, according to a new survey by Natixis Global Asset Management, while U.S. stocks, real estate and government bonds will disappoint. 

The findings were part of a poll of 500 institutional investors who manage pensions, , sovereign wealth funds, insurance funds, endowments and foundations in North America, Latin America, the United Kingdom, Continental Europe, Asia and the Middle East. Notably, data for the survey was gathered in October and November 2016.

Among the key highlights of the Natixis Outlook ’17 report:

  • Biggest winners of 2017: Investors predict emerging markets stocks, private equity and high-yield bonds will be the best in their respective categories of equities, alternatives and fixed income.
  • Disappointments: On the other hand, investors are skeptical about U.S. stocks, real estate and government bonds. 
  • Volatility ranks No.1: Volatility topped the list of concerns for 2017, with 65% pointing to geopolitical events, 38% citing the U.S. elections, and 37% noting the potential for changing interest rate policies. 
  • Where they will put their money in 2017: Institutional investors will shift more toward alternative investments in 2017, raising their allocations to 22% from 18%. They will raise stock allocations slightly and cut bond holdings. Half of surveyed institutional decision-makers across the globe plan to increase their use of alternative strategies in 2017, with two-thirds (67%) using them for diversification and a third (31%) for risk mitigation.
  • Sector picks: Institutions predict financials will be the best-performing stock sector in 2017, while utilities could deliver the biggest disappointment. In private equity, the best sectors will be media and telecom, infrastructure and healthcare.
  • Active management over passive: Especially in anticipation of higher volatility, institutional investors favor active management over passive. They also express concern over the market distortions caused by passive investing, with 73% saying the current market environment is likely favorable to active management. 

“Unprecedented economic and political forces around the world are the top concern for institutions in 2017,” said John Hailer, CEO of Natixis Global Asset Management for the Americas and Asia and Head of Global Distribution. “In volatile markets, institutions are looking to active management to strengthen returns and manage risk.”

U.S. Election Impact

The responses also showed that institutional investors’ confidence suffered after the U.S. election. Natixis conducted the survey in two stages, with 340 investors polled just before the U.S. presidential election on Nov. 8 and 160 responses collected just afterward. Prior to the election, two-thirds of respondents expressed confidence in their organization’s ability to handle the risks associated with investment performance, which fell to only 53% among those surveyed after the election.

The outlook for U.S. and emerging market stocks also changed substantially after the election. Forty-three percent (43%) of investors surveyed before the election said emerging markets would be the best-performing equity market in 2017 compared to 31% of those surveyed after the election. Meanwhile 46% of those surveyed before the election said the U.S. would be the biggest disappointment among global stock markets, compared with 31% of those surveyed afterward. 

The proportion of investors who said longer-term government bonds would be the most disappointing fixed income asset class in 2017 rose from 63% before the election to 76% 

Based in Paris, Natixis Global Asset Management is one of the world’s largest asset management firms. Uniting over 20 specialized investment managers globally, the firm manages approximately $897 billion across a diverse range of investment solutions and strategies. It is part of Natixis, the international corporate, investment, insurance and financial services arm of France’s Groupe BPCE.

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