Global institutional investors expect higher interest rates and the tapering of monetary policy to be the biggest issues affecting their portfolio performance in 2018, according to a recent survey by Schroders.
The survey, which polled 500 institutional investors across North America, Europe, Latin America and Asia, also found that while 48 per cent of respondents agree geopolitical events will affect their portfolio’s performance, 70 per cent expect them to have the potential to create investment opportunities.
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Nearly two-thirds (63 per cent) of North American investors and 52 per cent of Latin American respondents expect geopolitics and populism to have a greater impact on investment decision-making compared to 12 months ago. On the other hand, European and Asian institutional investors are less concerned about geopolitics and populism, with 45 and 38 per cent, respectively, saying those issues will be a bigger focus this year.
“Monetary policy is fittingly at the forefront of investors’ minds after many years of low interest rates and abundant liquidity, with notably the United States’ Federal Reserve now acting to unwind its quantitative easing program and raising rates,” said Charles Prideaux, head of solutions at Schroders, in a news release.
“Geopolitics and populism have also dominated investors’ thoughts over the last couple of years and it appears that they will remain a nagging concern going forward.”
The survey also found that North American institutional investors are more confident about higher returns in 2018 compared to their European counterparts. More than half (54 per cent) of North American respondents are targeting returns of at least seven per cent, compared to 40 per cent of those in Europe. Latin American investors are also optimistic, with 55 per cent hopeful their portfolio will return at least seven per cent in the year ahead.
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But while institutional investors in North America are expecting higher returns, European survey respondents are substantially more confident about achieving their goals. Some 61 per cent expect to meet their investment targets, compared to 46 per cent of North American respondents. Globally, 54 per cent of institutional investors are confident of reaching their return objectives. At the same time, about a quarter (28 per cent) of investors globally admitted to having increased their allocation to cash.
North American investors are also ready to be patient about meeting their return goals, with 61 per cent saying they’re willing to hold a strategy for at least four years, compared to 53 per cent of European respondents. Institutional investors in Asia have the shortest time horizon, with 51 per cent expecting to change their investment strategies within four years.