- Active management: Almost three-quarters also say current market conditions are more favorable to active management. Higher volatility is likely to lead to greater dispersion1 within equity markets, and institutions believe the tide is turning in favor of active management. Institutions anticipate adding considerably less to current passive allocations over the next three years than in previous estimates.
- Alternatives for diversification: Looking at a market that could be marked with a double-hit of increased volatility and rising interest rates (at least in the U.S.), institutions say they will dial back on fixed-income allocations, and two-thirds of institutional investors globally say it is essential to invest in alternatives in order to diversify portfolio risk.2
- Sector calls: In looking at sector performance, institutional investors are split on just what will result in a big gain or a big loss in 2017. Financials sit atop the projections for the biggest gainers but also rank second, behind utilities, as the biggest disappointment in the year ahead. The divergence of opinion indicates a clear philosophical split.
1 Dispersion refers to the variability of returns among individual indexes and stocks within each index.
2 Diversification does not guarantee a profit or protect against loss.