At a recent Schroders Investment Conference in London, over 120 intermediary clients attended from Europe, the Middle East, the US and Latin America. They were surveyed on their outlook for several asset classes, as well as their views on quantitative easing and the US fiscal cliff.
The results reveal that European equities are currently seen to be one of the most attractively valued asset class, with 41 per cent of those surveyed intending to increase their clients’ asset allocation to this sector by the end of the year. This was supported by an increased appetite for risk as, by the end of the conference, almost three-quarters (72 per cent) stated that they had already re-risked their clients’ portfolios, or would expect do so within the next six months.
The survey also reaffirmed the continued search for income in this current low yield environment, with more than three-quarters (77 per cent) stating that the minimum yield that they would accept from an equity yield fund would be between 3 and 5 per cent. In addition to this, 63 per cent would prefer a variable yield with the scope to achieve between 4 and 7 per cent, while 23 per cent would be happy with a fixed distribution of 5 per cent.
With regards to the US, nearly two-thirds (64 per cent) believe that the risk of the fiscal cliff has been fairly priced in to risk assets, assuming that the worse case scenario does not play out. In the event of the worst case scenario, only 5 per cent are confident that the market is aware and fairly priced. Despite this apparent confidence towards the pricing of risk assets, 21 per cent of those surveyed felt that the US economy may not be as healthy as many believe and only 9 per cent viewed US equities as sufficiently attractive in valuation to increase clients’ asset allocation over the next quarter.
Opinion on quantitative easing was somewhat divided – while 16 per cent saw QE as having had a positive effect, over half (52 per cent) believed that, while this may have been the case in the past, recent rounds are having a diminishing effect. Conversely, a quarter (25 per cent) saw no positive effects, but felt that QE is likely to lead to an inflation problem in the long-term.
Peter Beckett, Head of International Marketing at Schroders, said:
“Despite on-going uncertainty across Europe; this survey has highlighted a possible turning-point in investor sentiment towards European equities and risk assets. With valuations looking particularly attractive at the moment, this could indicate that the time for a re-entry to risk assets may be upon us. This is consistent with our survey from earlier this year, whereby investors asserted that they considered equities to be the most important asset class for the rest of the year. This year’s results also indicate that while client demand for income prevails, the appetite for risk has increased in the past six months. Elsewhere, investors are showing caution towards the US, considering uncertainty surrounding the health of the economy and the as-yet unresolved fiscal issues.”
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