Aon Hewitt has highlighted the need for pension funds to remain agile in their investment strategies.
Aon Hewitt’s call to action is in response to its annual fund manager survey, incorporating the views of 120 fund managers, together representing over £10 trillion of assets under management. The survey asked which asset classes were likely to be the strongest and weakest performers for 2013, given performance to date over the first quarter.
The results, which were gathered at the end of March and presented at Aon Hewitt’s recent annual fund manager conference, revealed that fund managers expected that equities were likely to offer pension funds the best returns during 2013. Global equities were expected to be the top performer according to 31% of those polled. Meanwhile, nearly a quarter (24%) predicted that emerging market equities would finish as the best performer for the year, ahead of other regions, even though they had a weak start to the year with marginal falls in the first quarter. Interestingly, European equities finished high on the list of both potential market leaders and laggards (4th place in both). Investment-grade credit was expected to deliver the weakest returns during 2013, according to 32% of those polled, while inflation-linked bonds emerged as the second most likely poor performer (14%), despite a strong start to the year.
The broad sentiment among fund managers was that equities would out-perform bonds over the year, which reflects the dominant view among investors at present. However, Aon Hewitt said that the detail in the survey findings also pointed to the changeable outlook for markets, suggesting that the first quarter's performance could be an unreliable guide to market conditions for the year as a whole. Another signal of market uncertainty was the split view on European equities with responses that reflected nearly equal levels of optimism and pessimism.
Tapan Datta, global head of asset allocation at Aon Hewitt, said:
“Given the strong start to the year for index-linked gilts, which were ahead of global equities in the first quarter, the current view from fund managers is that these gains for inflation protected bonds may be surrendered by the end of the year. In recent years, some big moves in the first quarter have been turned upside down as the year progresses. For example, in 2011 equities performed well in the early months, before finishing the year significantly down. Clearly, fund managers expect that the reverse is true of emerging market equities, which have had relatively weak performance so far this year. We are also struck by the conflicting views from managers on the outlook for European equities.
“Markets have always been subject to fluctuation over time, creating opportunities for investors to make returns on their investment. However, the results of this survey reveal just how quickly the outlook for asset classes can change. While pension funds are long-term investors and we do not necessarily encourage a short-term view, this data does highlight the need for pension funds to monitor fluid market conditions and to be able to move swiftly where necessary.”
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