Over the next three years, despite volatility, equities are likely to remain the preferred investment. The survey found that 65% of investors think equities will remain attractive if bond yields remain low.
Moreover, one in two respondents believed there will be a global rotation from bonds to equities over the same time period.
The most attractive equity markets over the next three years are likely to be the US, India and Japan, according to the report.
The findings are based on a survey of 705 pension plans, sovereign wealth funds, asset managers, pension consultants and fund buyers across 29 fund jurisdictions, with a combined AUM of $26.8 trn.
About 30% of survey respondents believe long-term investors such as pension funds are likely to increase allocation to equities over the next three years.
In addition, some Asian governments favour equity investing. Pension funds in Japan and Korea are moving to increase equity allocation, leading to a distinct tilt toward stocks, said Kirk West, Principal’s Asia CEO.
Given the low interest rate environment, a majority (70%) of investors said they are likely to become pragmatic in their approach and will chase returns and not asset classes.
“Investors are recognising that future returns for most asset classes will be much lower than in the past. But they are also conscious of missing what may be a once-in-a-generation bull market,” according to the report.
“The result will be a ‘bondification’ of equities, as investors chase stocks with good dividends, less debt, strong pricing power, free cash flow and a high return-on-equity.”
Only 4% of the sampled respondents believed that “the cult of equity is dying”, even as there are concerns that quantitative easing policies adopted by central banks in Europe, Japan and the US have been the primary drivers of market rallies in recent times, rather than corporate fundamentals.
