Global institutional investors are seeing multiple risk factors on portfolio performance in the next 12 months, as the Ukraine crisis, rising inflation and the uncertainty triggered by the Covid-19 pandemic hits return expectations for the next five years. This year‘s Institutional Investor Study – spanning 770 institutional investors, collectively responsible for US$27.5 trillion in assets – reveals how the geopolitical risk and climate weigh on confidence and performance.
Rising inflation and interest rates, hawkish monetary policy stances, global conflicts, and the looming threat of a global economic slowdown are among the main issues that may impact portfolio performance in the next 12 months. This level of concern among institutional investors has not been recorded before in the Schroders Institutional Investor Study. At least half of respondents view seven different factors as highly threatening to their portfolio performance in the next 12 months.
While the Covid-19 pandemic has fallen sharply as a significant influence, oil prices, global supply chain disruptions, which the pandemic triggered, are prominent, as well as the accelerated attention on climate change risk that will impact both our natural habitat and global economy.
Q: What influence do you expect the following to have on your portfolio's investment performance in the next 12 months?
After many years of loose monetary policy, investor concerns are dominated by the rise in inflation and the policy response from central banks. Geopolitical risks have also risen in the wake of the Russian invasion of Ukraine adding further uncertainty to an outlook where an increasing and significant number expect a global economic slowdown.
We saw in the 2020 and 2021 Institutional Investor Study results that investors’ outlook for investment returns for the next five years remained broadly positive, despite the global pandemic. However this year, return expectations for the next five years has deteriorated slightly across the world with fewer estimating return on their total portfolio will be above 6% (42% vs 47% in 2021). Additionally, the number of investors estimating 4% returns or less increased from 17% to 27% this year.
Q: Please estimate the average annual return expectation of your organisation’s investment portfolio for the next five years, net of fees
Markets continue to be caught in the cross currents of concerns about rate increases and worries about recessionary risks. The Study found that investors’ allocations to equities have dipped, reflecting our own house positioning.
Almost half of investors say they are confident in achieving their return expectations – on par with last year. Greater confidence is demonstrated by investors in all regions except Europe, with North American investors expressing the most bullish sentiment (48% vs. 44% in 2021).
Q: How confident are you in achieving these return expectations?
Schroders annual Institutional Investor Study analyses the investment perspectives of 770 global institutional investors on the investment landscape, sustainability and private assets. Download the full report which sets out investors’ thoughts on the macroeconomic environment and their asset allocation decisions.