Equity investors more confident than fixed income counterparts – Aviva Investors survey

Aviva Investors’ latest annual fund manager survey has found that equity investors are far more confident about markets than their fixed income counterparts.

The finding is based on responses to a survey put to managers responsible for some £2.5trn worth of assets and based in the UK, US and Europe.

Nearly seven in 10, 69%, of professional equity investors are more confident about markets than they were at the same time last year.

Aviva Investors said that may be because equity returns beat expectations through 2012, and that there is a belief central banks have done enough to calm markets.

Fixed income managers share the view of central bankers, but just a quarter, 26%, are more confident about markets than they were last year.

Both are still pessimistic about the eurozone, however, with 90% of fixed income and 71% of equity managers expecting continued uncertainty.

The US fiscal cliff remains a concern too. The survey found divided opinions on whether an agreement will be found regarding spending cuts and an increase to the US sovereign debt ceiling.

Peter Fitzgerald, co-head of Multi-Manager at Aviva Investors, said: “It is interesting to note the important role that confidence plays even to professional investors. While equity investors are often those with a more optimistic view, the year on year change and divergence in sentiment is dramatic. On the back of a year of strong returns, equity managers have become more bullish and far more confident than their fixed income peers. Whilst risks have by no means dissipated entirely, as exemplified by the recent Italian election results, it does appear as though the investment professionals are expecting a rotation from bonds to equities.'”

In addition, the survey revealed the following results.

Equity managers:

   • Unanimously agree that IPO activity will pick up this year compared to 2012. Last year, only 17 % were of this view.

   • Are significantly more bullish on financial stocks. In fact, over a third of the respondents (38%) are expecting them to deliver the greatest performance this year. In contrast, 44% of survey respondents were underweight in the sector last year. With only one manager overweight, this indicates that just over half of equity managers held index weights.

   • Are more confident about global market returns than they were last year, with 71% expecting 5 – 15 % for 2013. Last year, the majority expected 10% or less for 2012.

   • Cited macro-economic issues as the biggest risk to equities (62%). This remains unchanged from last year. Valuations are of little concern (9%).

Fixed income managers:

   • Are significantly less worried about liquidity risk in corporate bonds, which was cited as the biggest risk factor last year (20% vs. 77%). They are also less concerned about defaults in sovereign bonds (6% vs. 64%). The majority, however, stipulated low yields and rising interest rates as the biggest risks to their asset class. In comparison, a small minority was concerned about interest rate rises last year.

   • Are far less confident about market returns this year than their equity peers. While the overwhelming majority (95%) expect positive returns of up to 10% for corporate bonds, they expect negative returns for sovereign bonds (62% vs. 23% last year).

While this means the outlook for the former has improved (15% expected negative returns and just under half forecast a maximum 5% in 2012), return expectations for sovereigns have notably deteriorated (62% predicted positive sovereign returns for 2012).

   • Perhaps unsurprisingly therefore, managers almost unanimously agree that diversifying fixed income investments will be a key driver for returns in 2013 (81%).


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