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Institutional Investor Study 2021

Investment Outlook

Global institutional investors’ return expectations and confidence levels have bounced back in 2021, highlighting a more positive outlook for the next 12 months. Although concerns of macroeconomic uncertainty continue. This year‘s Institutional Investor Study – spanning 750 institutional investors, collectively responsible for $26.8 trillion in assets – reveals that the impact of Covid-19, a global economic slowdown and negative interest rates continue to be identified as key factors that may influence investment performance in the next 12 months.

Against this more positive outlook, the number of institutional investors in the Study that are prioritising capital growth has jumped significantly this year, as investors search for yield in a post pandemic and zero rate environment. However, concerns about tapering of monetary policy and climate change risk have begun to emerge.

%

believe world crises will have the greatest influence on portfolio performance

%

highlight capital preservation as their top investment objective for the next 12 months

%

maintain return targets in light of #TheZero environment

%

anticipate annual total return in excess of 6% over the next five years

The pandemic is still seen as having the biggest influence on portfolio performance, but has fallen significantly compared to a year ago along with the effect of the global economic slowdown. The improvement in global growth prospects is clearly having an influence and investors are growing concerned about a withdrawal of liquidity through a tapering of monetary policy. Other rising influences are regulation and climate change, no doubt reflecting the agenda of the new Biden administration as well as moves by China and the European Union.

Keith Wade Chief Economist
OPTIMISTIC RETURN EXPECTATIONS

Return expectations have increased from 2020 as institutional investors feel more confident for the next 12 months

We saw in the 2020 Institutional Investor Study that investors’ outlook for investment returns remained broadly positive, despite the global pandemic. A year later, this positive outlook continues with 47% estimating their average annual total return will be above 6% over the next five years, compared to 35% last year. 13% have also anticipated a return above 9%, up from 5% in 2020.

This improved outlook has also fed through to confidence levels, with 46% of global institutional investors being confident in achieving their return expectations compared to 33% in 2020. Greater confidence is demonstrated by investors in all regions, with European investors expressing this sentiment the most.

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Read the insights article
#THEZERO

Return targets unfazed in a zero - interest rate environment

53% maintain return targets

This increased confidence is also reflected in the lack of changes to return targets in light of the negative interest rate, or #TheZero, environment. Globally, more than half of investors highlighted that they are keeping the same absolute or real return target even in a zero rate environment. North American investors are the most bullish in their expectations (60%) while European investors are more cautious (46%). Only 16% of global investors expect to lower both absolute and relative return targets.

Read our latest #TheZero insights content
PORTFOLIO INFLUENCERS

Covid-19 and economic slowdown continue to be the primary influencing factors on portfolio performance

The impact of Covid-19 and the threat of a global economic slowdown continue to be the primary factors investors believe will impact investment performance in the next 12 months. This year Covid-19 has overtaken a global economic slowdown as the biggest concern to likely impact on portfolio performance. Zero interest rates come in closely behind.

%

World crises

%

Global economic slowdown

%

Negative / ultra-low interest rates

In 2020, we saw investment concerns such as the potential tapering of monetary policy, regulation and climate change risk move to the periphery as Covid-19 issues took centre stage. As investors look forward to the next 12 months and beyond, these traditional influences on portfolios have returned to the foreground and increased in significance.

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Tapering of monetary policy

44%
23%
51%
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Regulation

24%
15%
27%
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Climate change risk*

8%
21%
*This chart includes options that were not asked in 2019.

Climate change poses significant risks to both the global economy and investment portfolios; climate change is also likely to be an investment opportunity as it creates winners and losers. The financial sector has a key role in supporting sustainability as institutional investors can help build environmental resilience by decarbonising their portfolios and redirecting investments towards solutions to tackle climate change.

Irene Lauro Economist

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