Institutional investors are positioning themselves to make tactical moves in 2022, with very few changes to their allocations overall, according to Natixis Investment Managers (Natixis IM).

According to its survey of 500 institutional investors who collectively manage more than USD 13.2trn in assets around the world, institutional investors plan to make few broad changes in their overall allocation to stocks (39 per cent), bonds (37 per cent), cash (5 per cent) and alternatives or other (19 per cent) in the year ahead.

In regard to the hunt for yield, private assets and alternatives have been sought after in 2021 with 84 per cent of institutional investors now investing in private equity, 81 per cent private debt and 81 per cent in infrastructure.

For 2022, investors have pointed to information technology (45 per cent), healthcare (41 per cent) and infrastructure (40 per cent), followed by energy (34 per cent) as the most attractive sectors. However, less than half of respondents (45 per cent) think private assets will offer a safe haven in the event of a market correction, as private markets continue to rise into record territory. Sixty-nine per cent of those surveyed are concerned that institutions have taken on too much risk in their pursuit for yield.

In addition, 62 per cent of institutional investors expect pent-up demand for big-ticket items will be a significant driver of growth in 2022 – dubbed ‘revenge spending’. However, most believe that policymakers ultimately hold the keys to economic recovery and that those policies are behind the current imbalance in supply and demand, inflation, and distorted stock valuations. Nearly seven in 10 (68 per cent) believe that once central banks stop printing money, the long bull market will come to an end, but not in the year ahead.

When it comes to risk, seven in ten 10 (69 per cent) say rising inflation is a top portfolio risk, though they are more likely to believe it is structural (55 per cent), resulting from a combination of loose monetary policy and low interest rates, rather than cyclical (45 per cent). Inflation poses a number of long-range economic issues, but interest rate policy presents institutional teams with more immediate investment challenges, with 64 per cent of respondents citing interest rates as a top portfolio risk.

Natixis IM head of Northern Europe, Andrew Benton, said: “Revenge spending will prove to be a real driver in 2022. There’s real pent-up demand from consumers who are in the market for big-ticket items, but we expect supply chain disruptions will continue to drive up prices. However, sustained economic growth is riding on central banks, which currently hold an outsized role in market performance. The majority of institutional investors see the long bull market coming to an end once central banks pull back on supportive measures. Generally, institutions are looking into 2022 with optimism. But high volatility across the stock market, rising inflation and interest rates are keeping investors on their toes, increasingly pushing them to allocate more tactically to navigate the current environment.”

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