Equities will outperform bonds in 2015 and may perform better than any other asset class if the predictions from investment professionals and institutional investors are true.
The investment team at BMO Global Asset Management has given a 60% probability to a scenario in which selected developed markets, namely the US, UK and Canada, will grow strongly, leading to attractive equity returns. In this scenario, the firm advises an overweight equity position relative to bonds, though it gives a caveat that “cheap valuations are not the same engine they were earlier in the recovery”.
Elsewhere, a survey of 642 institutional investors by Natixis Global Asset Management found that 43% expect equities to be the best performing asset class next year, compared with 28% who picked alternative asset classes and only 13% who said bonds.
“Attractive returns from stocks will be generated less from valuation and general market rise and more from finding specific securities where companies have a sustainable competitive advantage to generate growth and drive earnings,” says the investment team at BMO Global Asset Management in a statement.
A recent report from asset manager BlackRock found evidence of renewed interest in equities during November this year, after the asset class suffered a difficult month in October.
The BMO team also raised the prospect of a less optimistic scenario, in which growth is severely restricted in both China and the eurozone, but only put a 15% probability on this outcome.
The institutional investors in the Natixis survey expressed concern over growth too. European economic problems were named as the top potential threat in 2015 by 13% of respondents, while slower growth in China was named by 12%. The risk of unspecified “geopolitical events” was the top concern, chosen by 17% of respondents.
The Natixis survey also found that, on average, institutional investors think they can achieve a return of 6.9% a year after inflation.
©2014 funds europe
