Equities, property and private equity will be on the shopping list for Nordic pension and insurance funds over the next six months, according to the results of nrpn’s latest quarterly investor survey.

The study, which took in responses from 12 investors with almost €145bn of assets under management, found that two-thirds of pension and insurance funds intend to increase their exposure to stocks over the next six months, while half of respondents plan to ramp up their property and private equity holdings.

Unsurprisingly, investors are also much more optimistic about future equity market returns with respondents predicting that US stocks will turn in 3.75 per cent over the next six months compared to estimates of 1.78 per cent in our autumn survey. Return expectations for Asian equities at 7.5 per cent were also markedly higher than previous autumn estimates of 5.35 per cent. Respondents were, however, less optimistic about Japanese market returns with predictions slipping from 3.92 per cent to 3.05 per cent.

Estimates from emerging market equity returns were also up at 6.9 per cent from 6.07 per cent and, on the bond side, investors also showed an interest in emerging market debt with more than 40 per cent (five) of respondents indicating that emerging market paper would be the most interesting of all the bond classes over the next six months. At the same time, four investors said that corporate debt would be the most interesting bond class, while two respondents plumped for government bonds. At the other end of the scale only one investor believes that high yield bonds will be more interesting than any of the other bond classes.

But, while equities, property and private equity are on the shopping list for investors, 75 per cent of respondents said that they will cut into their fixed income allocations going forward with no investors indicating that they intend to increase their exposure to fixed income over the next six months.

Redirecting towards alternatives

Timo Loyttyniemi, managing director of the Finnish State Pension Fund, which is to receive a cash injection of almost €1bn from the Finnish government before the end of the year and another €800m next year, told nrpn: “We are aiming to have 10 per cent of our investments held in alternatives within the next two years, most of which will come from new money but some of which will be redirected from our fixed income holdings.”

Although six investors said that they plan to increase their exposure to real estate over the next six months, we also asked investors what most worried them about the overseas property market and more than 40 per cent of respondents said that their greatest concerns centred around pricing. Three investors said they were most concerned about the quality of managers and advice and two respondents were most worried by liquidity. At the same time, two investors said that they had no concerns about the overseas property market.

Realistic oil expectations

The survey also asked investors to predict at what price they thought US light crude would settle over the next six months and unlike our previous survey not one investor said that it expects the barrel price of oil to finish higher than $75 over the next six months. The large majority of respondents (seven) thought that prices would end up in the $55 to $64 range and three expect prices to fall within $65 to $74. Not one respondent believes prices will drop below $44.

Out of the 12 polled investors two-thirds believe that world growth prospects will remain positive over the next six months and one third expects world growth prospects to remain neutral. As in our previous survey, not one believes that growth prospects will be negative.

Figure three: Average asset allocation for next six months





Figure four: Expected US light crude oil price per barrel over the next six months

Central banks expected to curb interest rate hikes over next six months

Five investors expect the Federal Reserve (Fed) to increase interest rates twice over the next six months and nine expect the European Central Bank (ECB) to leave US rates well alone, according to the results of nrpn’s latest quarterly investor survey, which took in responses from 12 investors with almost €145bn of assets under management.

Not one pension or insurance fund believes that either the Fed or the ECB will increase rates more than twice going forward although a quarter of respondents expect the Fed to push rates up once over the next six months and a third of investors believe the ECB will sanction one rate increase.

Pimco’s Andrew Bosomworth says: “Loan growth in the euro zone suggests that money still costs too little and that the ECB might continue raising rates.

“However, a slowing US economy, monetary and fiscal tightening in the euro area as well as a cooling economy in Spain lead us to believe that the ECB will stop its rate hikes sooner than expected. Looking at the headwinds to economic growth, the ECB should stop raising rates at 3.5 per cent. But to cement its inflation-fighting credibility the ECB might go to 4 per cent.”

Figure five: Predicted Fed and ECB rises over next six months

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