Global institutional investors are increasingly concerned over how ongoing political turmoil will affect portfolio performance over the next 12 months.
Over half of investors believe that events such as Brexit and the ongoing trade war between the US and China will have a negative impact on their investments.
In 2017, just over 30% of investors expressed this as the main concern for portfolio performance, while last year 44% said they feared the impact of geopolitical chaos, according to the latest institutional investor study by Schroders.
“Institutional investors can be forgiven for beginning to fear the worst. A number of geopolitical uncertainties have been hanging over their heads for some time now and it currently is impossible to say if there is any sign of these concerns abating,” said Schroders’ global head of investment, Charles Prideaux.
The global economic slowdown also came high on the list of major worries – with 32% of investors saying it was likely to affect their portfolio performance compared to 27% a year ago, the study found.
The survey also found that investors were less concerned over how higher interest rates would affect portfolio performance with 55% citing it was an issue, compared to 64% last year.
Other factors such as monetary policy tapering, regulation, and the risk of cyber-attacks have also fallen in importance over the last 12 months.
Despite their fears, respondents had generally positive return expectations, with the exception of those in Europe, Schroders said.
Nearly 70% of global investors said they expect annual total returns of over 5% over the next five years.
The study – which surveyed 650 global institutional investors with $25.4 trillion in assets – also found that private assets are becoming increasingly popular as investors seek to diversify their portfolios and increase returns.
Over 50% said they are looking to increase their exposure to private assets over the next three years. At present, the largest proportion of private assets portfolios are allocated to real estate followed by private equity, according to the study.
Georg Wunderlin, global head of private assets at Schroders said: “Institutional investors are increasingly aware that they can afford a higher share of illiquid assets in their portfolios, given their long-duration liabilities. They are therefore looking to capture the illiquidity premium while adding diversification to their portfolios.”
Over 70% of respondents also said sustainability will play an important role in their portfolios over the next five years.
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