Schroders : European institutional investors cautious compared to North American optimists

Institutional investors in North America are targeting higher returns over the coming year - with over half having return expectations greater than 7% - than their European counterparts, Schroders Institutional Investor Study* has found.

More than half of North American institutions (54%) seek returns of at least 7%, compared to 40% of European investors. Latin American investors were also optimistic, with 55% hopeful of recording performance of at least 7%.

In contrast, European investors struck a more cautious tone, with 30% pencilling in returns of just 1[(-4) was not found]. This is double the proportion of investors in North America expecting the same level of performance. Institutional investors in Europe and Asia also had a greater variety of return expectations, compared to investors in the Americas.

European investors however were substantially more confident of achieving their modest return goals, with 61% expecting to meet their investment targets, compared to 46% in North America. Globally, 54% of investors were confident of making their return objectives. At the same time, just over a quarter of investors globally (28%) admitted they had increased their allocation to cash.

North American investors were also prepared to be patient to meet their loftier return goals. Almost two-thirds (61%) are willing to hold a strategy for at least four years, compared to 53% of European investors. Asian institutions had the shortest investment time horizon with the majority (51%) expecting to change their investment strategies within four years.

Investment time horizons

Globally, investors highlighted monetary policy - the prospect of higher interest rates and the tapering of quantitative easing - as the macro issues set to have the biggest impact on portfolio performance. Although information security has increasingly become a mainstream issue, cyber attacks were only flagged by 17% of investors as a potentially important investment issue.

Geopolitical events and the rise of populism have dominated investors' thinking over the last two years and this theme is poised to remain particularly strong in the Americas. Almost two-thirds of North American investors (63%) and just over half of Latin American investors (52%) expected geopolitics and populism to have a greater impact on investment decision-making than compared to 12 months ago.

Although still a factor, European and Asian institutions were more sanguine about geopolitical matters and populism, with 45% and 38% of investors respectively in these regions of the belief that these issues will be a bigger focus.

Charles Prideaux, Head of Solutions, Schroders, commented:

'Monetary policy is fittingly at the forefront of investors' minds after many years of low interest rates and abundant liquidity , with notably the United States' Federal Reserve now acting to unwind its quantitative easing programme and raising rates.

'Geopolitics and populism have also dominated investors' thoughts over the last couple of years and it appears that they will remain a nagging concern going forward.

'Faced by these challenges, it is perhaps unsurprising that only a little over half of investors globally are confident of meeting their return objectives. Yet, strikingly, many investors in North and Latin America have return targets of at least 7%. In contrast, their counterparts in Europe and Asia have adopted more conservative outlooks.

'The demanding investment landscape shows no sign of abating, making it increasingly important Schroders works closely with its institutional clients to construct diversified portfolios and deliver solutions which optimise risk and returns to meet their objectives.'

Please click here to view the full report.

The first part of the Schroders Institutional Investor Study was released in October 2017. It found that institutional investors face sustainability investment hurdles and can be read here.

*The report was commissioned by Schroders to study institutional investors across North America, Europe, Latin America and Asia. The 500 respondents were interviewed during June 2017 and represent a variety of institutions, including pensions funds, foundations, endowments and sovereign wealth funds. A study based on the sustainability views of institutional investors was issued by Schroders in October 2017. It can be readhere.