Institutional Investors Bullish On 2024

A recent survey of over 300 global Chief Investment Officers (CIOs), portfolio managers, and other investment decision-makers demonstrates that despite an unclear economic outlook, the vast majority are bullish on the next 18 months.

The survey titled "Global Equity Markets: The Near-Term and Mid-Term Outlook Amid Inflation, Rising Rates, Global Conflict, and Pandemic Recovery," conducted by Institutional Investor's Custom Research Lab and equities-focused financing firm EquitiesFirst, paints a strong indication of broad optimism among institutional investors regarding equity performance over the next 18 months.

Anticipating a 5.9% Equities Return in 2023

Of note is the survey's result that most equity investors expect to recuperate a substantial portion of the double-digit losses suffered in 2022. Collectively managing around $8.5 trillion in assets, respondents foresee developed markets in North America, Europe, and Asia-Pacific delivering mean equity returns of 5.9% in 2023.

The range of upside expectations varies between 8.9% to 10.5%, while the downside is projected at -6% to -10%. A similar sentiment extends to emerging markets in Europe and Asia-Pacific, where average stock returns are anticipated at 6.7% (with an upside of 10.7% and downside of -8.4%) and 6.0% (with an upside of 9.9% and downside of -8%) respectively.

Favoring Tech and Health Care

When inquired about promising sectors, respondents voiced clear support for information technology and health care. Over two-thirds (69% and 64% respectively) of respondents identified these industries as having the potential to yield robust returns over the next three years.

Differences are notable, however, with global equities and European emerging markets showing slightly lower percentages (54% and 42% respectively) favoring the tech sector's prospects. Conversely, respondents in those subgroups expect a bright future for the energy sector. Notably, the enthusiasm for energy stocks from these groups is comparable to, and even surpasses, the percentage endorsing IT stocks, a consensus echoed in other subgroups as well.

A shared viewpoint is that "health care is going to be a big sector because of demographic shifts and expanding access in developing countries." Investors also foresee segments within health care potentially outperforming the IT sector.

The survey also pinpoints sectors that institutional investors believe will either stagnate or disappoint over the next three years. A limited number of respondents find real estate, financials, utilities, materials, and communication services appealing in terms of returns within this timeframe.

Strategies: Smart-Beta, Active in EMs, and Growth Prevail

The survey offers insights into strategies institutional investors believe will capture opportunities and yield high returns in equities over the next two years. Notably, 67% express a preference for smart-beta strategies – a hybrid approach involving weighted index strategies that adjust assets or investment characteristics.

The developed North American and European markets show the strongest inclination for smart-beta strategies, with 74% and 72% respectively endorsing them. Meanwhile, 64% of respondents focusing on developed Asia-Pacific markets opt for smart-beta approaches, highlighting their value in efficient, high-volume trading markets.

Emerging markets, in contrast, see investors leaning towards active strategies that can capitalize on mispriced assets and volatility-driven disruption. Nearly half (47%) of investors targeting emerging markets prefer "high conviction, concentrated active equity strategies" for the next two years.

Noteworthy is the resounding preference for growth strategies, with 73% of investors projecting these to yield the strongest returns in the next three years. In contrast, only 21% believe in "index/passive strategies" and a mere 6% back value strategies.

This marked support for growth strategies possibly indicates an upbeat sentiment regarding equity markets into the mid-2020s, possibly tied to prospects of sustained economic growth and innovation-driven high-growth companies.