The 2015 Create Report, commissioned by Principal Global Investors, suggests that investors will turn to defensive equities instead of bonds because of current valuations of fixed income instruments, which is challenging former notions of ‘risk free’ assets.
Professor Amin Rajan, CEO of Create-Research and the author of the report, said: “The revived interest in equities is being driven by a high wire act. Investors are recognising that future returns for most asset classes will be much lower than in the past but they are also conscious of missing what may be a once-in-a-generation bull market. The result will be a ‘bondification’ of equities, as investors chase stocks with good dividends, less debt, strong pricing power, free cash flow and a high return on equity.”
Rajan’s report – Pragmatism Presides, Equities and Opportunism Rise – looks at questions around equity risk premia in an environment of artificially suppressed interest rates, as well as questions around which asset classes will be favoured by different investor groups over the next three years.
The report’s findings are based on a survey of over 705 pension plans, sovereign wealth funds, asset managers, pension consultants and fund buyers in 29 jurisdictions, representing AUM of $26.8trn. Some 102 interviews were also conducted as part of the methodology.
Among the key findings are:
- Support for equities varies by region
- The majority of respondents expect equities to remain volatile
- Half of respondents believe a rotation will occur from bonds to equities over the coming three years
- About a third expect pension schemes to increase allocation to equities
- Seven in 10 expect investors will chase returns not asset classes in the coming three years
- Highest returns are expected to come from private equity
The full report is available at: create.principalglobal.com