(February 7, 2013) — Investment consultants in the United States expect lower returns from portfolios going forward, forecasting an average return of 6.6% in 2013 and beyond, compared with 2010 expectations of 8%, according to a study by eVestment and Casey Quirk & Associates.
One investing strategy has a brighter outlook, however, with emerging market equity expected to be the most sought-after strategy in 2013, representing 9% of all search activity–an increase of three percentage points over the previous year. “We’re starting to see manager replacement within the asset class of emerging market equity with consultants and plan sponsors moving into the area–it’s a signal of manager competition and demand,” Ben Phillips, partner at Casey Quirk, told aiCIO. “It’s a sign that emerging market equity is becoming a hotter asset class.”
Consultants also say their clients continue to seek higher-yielding fixed income strategies. They forecast that emerging markets debt and high-yield fixed income will represent the third- and seventh-most popular asset classes during the year, respectively, with a decreased interest in long-duration bonds.
At the same time, concern about volatility remains high among institutional investors, and 75% of consultants polled revealed an elevated client focus on measuring and managing risk. Phillips additionally noted that for institutional investors, the line between US and international investments continues to erode. “We’re seeing more globalization of portfolios,” he said. “Historically, plan sponsors and consultants overweighted to their home-country, but that’s changing because of the availability of global strategies.”
“Traditional benchmark investing is no longer a sufficient stand-alone vehicle for driving flows into today’s volatile marketplace. Managers have to focus on outcomes–not just their strategies–to remain successful and maintain and grow client share,” added Benjamin Olmstead, vice president of new product innovation at eVestment.
In 2012, the survey’s respondents conducted nearly 5,300 searches and placed a total of $400 billion in mandates. The survey was conducted from December 2012 to January 2013 and polled US-based investment consultants to forecast buying behavior for 2013 among institutional investors.