A majority (77 per cent) of U.S.-based institutional investors expect interest rates and inflation to remain elevated in 2024, causing problems for risk assessments over the next year, according to a new survey by CoreData.
The survey, which polled 100 U.S. institutional investors, found the number of investors concerned about the role of inflation over the next 12 months increased from the second quarter by about 17 percentage points.
The reality of increased interest rates is pushing asset managers to de-risk their portfolios. Indeed, half (50 per cent) of survey respondents chose fixed income as their top asset class for risk-adjusted returns over the next year, followed by cash (47 per cent) and equities (47 per cent). In addition, 43 per cent of respondents said they’ve raised their strategic allocations to government bonds or cash-like investments.
Institutional investors are also cutting down on risk exposure, with 44 per cent of respondents saying they’re slowing down new investments in risk assets and 30 per cent trimming positions.
The survey also found 38 per cent of respondents said their organizations will offboard active strategies that failed to produce results in the last few years. Despite this ongoing concern, more than half (54 per cent) of investors polled said they expect their actively managed equity strategies to deliver outperformance next year.
“The trend of de-risking portfolios and consolidating active investments with high conviction managers is likely to accelerate, putting a painful squeeze on the industry which is already faced with a low beta environment,” said Michael Morley, U.S. research director at CoreData, in a press release.