Study: Investors Are Eager to Grow Risk Appetite, International Exposure

(November 29, 2011) — While market volatility is expected to remain the same or increase in 2012, investors are eager to intensify their risk appetite and grow international exposure, a study conducted by Information Management Network (IMN), global organizers of institutional finance and investment conferences, has discovered.

The survey found that 71% of respondents — which included plan sponsors, endowments, foundations, health-care organizations, non-profit investors, institutional investors, and fund managers —  feel more prepared to combat exposure now than they did in 2008. Meanwhile, 62% of survey respondents use alternative assets citing a combination of hard assets (48%), hedge funds (36%), private equity (36%), as well as commodity futures, real estate, natural resources, and infrastructure.

In addition, most respondents said they expect that market volatility and global economic conditions will have the greatest impact on portfolio strategy (66%), followed by changing regulatory requirements (11%) and customer demand for control and transparency (5%).

“I am encouraged by investors’ willingness to increase their exposure to the market. It suggests that professional investors are able to look beyond near-term volatility and seek attractively priced markets,” said Jack Ablin, Chief Investment Officer of BMO-Harris Private Bank in Chicago, in a statement.

The study follows an earlier report by Bank of America Merrill Lynch, which found that — driven by Eurozone turbulence — money managers are fleeing to US and emerging market equities. According to the firm’s November survey of fund managers, a net 27% of investors are overweight in emerging markets during the month, up from a net 9% in October. Meanwhile, a net 20% of investors are overweight in US equities, up from a net 6% in October. In August, the firm issued another report showing that global emerging markets have increased in popularity, as concerns about a weakening of the Chinese economy have subsided. The findings showed 19% expected the Chinese economy to weaken over the next year, down 20 percentage points from July. This improved outlook was supported by a shift toward commodities, Merrill said.

The firm’s evidence showcasing a greater attraction to US and emerging market equities follows a September report by the International Monetary Fund (IMF) that revealed that pension and insurance funds may up their allocation to equities and other riskier assets in emerging and developing countries. According to the group’s Global Financial Stability Report, historically low interest rates in industrialized markets are threatening pension plans in Canada, Germany, Japan, Switzerland, Britain and the United States. Due to the low interest rate environment of those markets, pension and insurance vehicles are being left underfunded as a result of their reliance on traditionally safe investments, which are yielding little or nothing.