LONDON, NEW YORK, TORONTO, July 12, 2010 Mutual fund, hedge fund and private equity managers fear the impact of inflation but are optimistic about the prospects for U.S. and Asian equity markets over the next 12 months, according to survey data published today by RBC Capital Markets, the corporate and investment banking arm of Royal Bank of Canada (RY on TSX and NYSE).
The 102 asset management respondents, who manage a combined total of approximately US$4.1 trillion of assets, also project a slow global economic growth recovery and express skepticism about commercial real estate.
This unreleased data was compiled as part of a larger study
of 440 senior corporate and finance executives worldwide,
commissioned by RBC Capital Markets and conducted by the Economist
Asset allocation. Thirty-eight per cent of respondents selected currencies as the asset class they are most likely to increase in light of the sovereign debt crisis, 37 per cent chose equities and 35 per cent commodities. Perhaps reflecting concerns over levels of government borrowing, just 17 per cent plan to increase their allocations to U.S. Treasuries and 21 per cent to non-U.S. sovereign debt over the coming year.
The asset managers surveyed say they are skeptical about commercial real estate in their own markets, with 46 per cent of those surveyed saying that commercial real estate risk is higher this year than last. Just one-quarter (24 per cent) plan to increase their allocation to commercial real estate in the coming year.
Other key findings of the survey include:
Commenting on the findings, Marc Harris, Co-Head, Global Research, RBC Capital Markets, said: "Asset managers are concerned about a demanding macro-economic environment that could feature not only inflation but also slower-than-historic growth during the next couple of years. Such an environment would place a premium on the basics of identifying sound investments amid uncertainty, managing higher levels of risk and adhering to a disciplined, long-term strategy. In some respects, this could prove just as challenging as the volatile markets we saw two years ago, since sitting on the sidelines indefinitely is not an option for many asset managers."
Adam Cole, Global Head of FX Strategy, RBC Capital Markets, said: "Survey respondents felt that all of the main asset classes became riskier over the past year with currencies showing the largest increase. Despite this, currencies are amongst the top beneficiaries in terms of volumes of allocation by asset managers due to their extremely high liquidity and hedging potential. We are also seeing asset managers becoming increasingly sensitive to their indirect currency exposure and to correlations between FX and other asset markets which require more active management."
Additional findings from the survey include:
About the survey
RBC Capital Markets commissioned the Economist Intelligence Unit to survey 440 senior executives from around the globe (North America (34 per cent), Europe (41 per cent), Asia Pacific (16 per cent) and Rest of the World (nine per cent), including both clients and non-clients of the firm, on their outlook for the future of capital markets. The survey was conducted April 28-May 25, 2010. The respondents included 229 senior executives from commercial and investment banks, hedge funds and private equity firms and 211 executives from non-financial companies active in the capital markets. A total of 102 asset managers were surveyed, including executives and managers from mutual funds and other registered investments, hedge funds and private equity funds.
About RBC Capital Markets
RBC Capital Markets is the corporate and investment banking arm of the Royal Bank of Canada and is active globally in debt and equity origination, sales and trading, foreign exchange, infrastructure finance, and structured products across a number of industry sectors. Its North American platform includes a significant U.S. investment banking franchise and leading equity and fixed income underwriting, sales, trading and research businesses.
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1This finding reveals a shift in perception from a previous RBC Capital Markets survey conducted in the third quarter of 2009, in which the majority of the respondents from the same demographic perceived deflation to be a greater risk to their portfolio performance than inflation (44 per cent for deflation vs. 37 per cent for inflation).