Despite the battering that equity markets took last month (May) – which saw the Dow lose some 250 points during the five days between Monday 15 May and Friday 19 May and Russian, Turkish and Swedish equities fall by 9.1, 8.3 and 5 per cent on the following Monday – pension and insurance funds in the Nordic region are still very optimistic about the asset class, according to the results of nrpn’s latest quarterly investor survey.

Of the 12 pension and insurance funds that took part in the survey, representing some E92.6bn of assets, four said that they expect to increase their exposure to equities over the next six months and six said that they intend to keep their holdings at the same level.

Fixed income on the decrease

At the same time, five investors said that they intend to decrease their allocation to fixed income during the same time period and not one said that it plans to increase its exposure to the asset class.

But, while respondents were still keen to move more of their assets into equities, they agreed that the return on stocks would not be as good as they forecast three months ago. In our last survey, investors predicted that European equities would turn in 7.5 per cent over the following six months but in our latest survey that figure was revised down to 5 per cent. Similarly, investors predicted that Asian and emerging market equities would pull in 8.75 per cent and 11.25 per cent respectively three months ago, but investors have now pushed those estimates down to 4.54 and 5 per cent.

Investors were, however, more bullish on US and Japanese stocks with pension and insurance funds increasing their estimates on the US side to 5.22 per cent from 3.3 per cent and from 6 per cent to 8.4 per cent for Japan.

“The pullback in equities has come after a near doubling in markets from their lows in early 2003,” Paul Niven, head of asset allocation at F&C, told nrpn. “But the outlook for equities is becoming more challenging. Ahead of this pullback we had reduced risk from portfolios. In our view, investors’ risk appetite was unduly extended, and there was a large element of complacency over the outlook for global inflation and interest rates. Our concerns proved to be well founded.” There is still value in equity markets at current levels, he adds, “and the patient investor will be rewarded.”

Bonds bring in interest

On the fixed income side, respondents said that both government and corporate bonds would be the most interesting of all the bond classes over the next six months. In our last survey, just one respondent said that corporate bonds would be the most interesting bond class with five investors choosing emerging market paper. But only two respondents plumped for emerging market bonds this time around, while two chose high yield paper and four each went for government and corporate debt. Not one investor said it would raise its exposure to fixed income, however.

Instead five investors said that they intend to raise their exposure to private equity before the end of the year, four said they plan to increase their hedge fund holdings and four said that they will push more of their funds into real estate. At the same time, one investor said it would increase its allocation to commodities and not one said it would decrease it exposure to the asset class.

While five respondents plan to increase their private equity assets, one investor intends to reduce its exposure. One investor also plans to cut into its real estate holdings, one will reduce its hedge fund allocation and two intend to decrease their equity investments.

The survey also asked investors to predict at what price they thought US light crude would settle over the next six months and 10 of the 12 polled investors said that they expected the barrel price of oil to end the year in excess of $55 with six of those same investors expecting prices to finish above $65. Only one investor thought that prices would exceed $75 and only one investor said that prices would settle in the $35 to $44 range.

Out of the polled investors 11 – the same as in our last survey – believe that world growth prospects will remain positive over the next six months with one respondent expecting growth prospects to remain neutral. Not one expects growth prospects to be negative.

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Investors optimistic over Fed and ECB rises, but expect change

Not one investor expects the European Central Bank (ECB) or the US Federal Reserve (Fed) to increase interest rates more than three times over the next six months and not one expects the two agencies to leave rates unchanged – according to the results of nrpn’s latest quarterly investor survey, which took in 12 pension and insurance funds with €92.6bn of assets under management. In contrast with previous findings – the majority of respondents (six) expects the Fed and the ECB to increase rates twice, while two expect the ECB to increase rates three times and five expect the Fed to increase rates once over the course of the year. Since June 2004 the Fed has increased interest rates 16 times. The ECB raised rates to 2.75 per cent at the beginning of the month (June).

Click here to download figure one.
Click here to download figure two, three and four.