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Institutional investment managers, aka the “smart money,” have been shying away from stocks. As a result these folks have been underperforming their benchmarks as the stock markets have roared higher.Anecdotally, there has been talk from people like PIMCO’s Bill Gross who argue that the “equity cult” is dying. In short, this is the idea that stocks are falling out of favour as an investment in a diversified portfolio.
According to a new survey of 482 institutional investors by Natixis Global Asset Management, fund managers around the world have basically given up on time-tested investment strategies and have sought alternatives. Here are some of the global survey results (emphasis ours):
The majority of global institutional investors say many of the old rules of investing do not apply to current markets. The financial crisis of 2008-2009 has changed the way they look at investing.
- More than two-thirds of respondents (67%) agree that institutional investors need to replace traditional diversification and portfolio construction techniques with new approaches to achieve results. In the United Kingdom, 80% of investors agree on the need for new approaches.(Q27)
- Most (65%) global institutional investors say static 60/40 policy portfolios are no longer the best way to pursue return and manage investment risk; 80% of U.K. respondents agree with the statement. (Q27)
- More than half (57%) say that historical data demonstrating that longer holding periods decreases the likelihood of a negative annualized return are no longer valid. (Q20)
- One-third (33%) of global institutional investors rate their institution’s capabilities as above average for removing the guesswork in managing risk during periods of volatility; another 56% say they have average capabilities. In the Middle East, 45% of investors say their institution’s capabilities are above average. (Q22)
Here are some of the US survey results (emphasis ours):
- The majority (64%) of U.S. institutional investors say that traditional diversification and portfolio construction techniques need to be replaced. (Q27)
- Seven in 10 (72%) say that conventional 60/40 portfolios no longer are the best way to pursue returns. (Q27)
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