J.P. Morgan survey finds European institutional investors still favour equities

Nov 23, 2009

  • Emerging markets and Asian equities still favoured by institutions
  • Institutional investors expect returns in alternatives to be steady or increase over the next year
  • Fundamentals approach now chosen over quantitative

London, 23rd November 2009, J.P. Morgan Asset Management today published the results of its European Equity Survey which shows that European institutions still favour equities, despite recent market volatility.

The survey, which analysed the views of over 194 European institutional clients as to their market and asset allocation views, showed that on average institutional investors have not dramatically altered their allocation to equities. Analysis of the results showed that 61% of institutions have not changed their target equity allocation recently, despite adverse equity market conditions even though they still cite market volatility as a main concern over the next twelve months.

When looking more closely at equities over the next twelve months, 44% of respondents are confident large cap stocks will outperform small caps and over half indicated they expected global emerging markets followed by Asia ex-Japan to be the best performing sectors.

The survey also showed that although each country differed slightly, on average, pension funds and life companies across Europe, with the exception of UK, favour conservative portfolios with an average of 29% of their target allocation in equities, 57% in fixed income and cash and 13% in alternative assets. In the UK, institutions on average allocate 56% to equities, 31% to fixed income and cash and 14% to alternatives, demonstrating a higher level of risk.

Despite the positive views of equities institutional investors also still favour alternatives and expect all asset classes within alternatives to maintain or increase their value over the next 12 months. Respondents were most bullish about absolute return/hedge funds and commodities, where 63% and 56.4% of respondents respectively expect to see increased returns.

Commenting on the equity findings in the survey Karsten Stroh, Head Client Portfolio Managers for European Equities at J.P. Morgan Asset Management, said, “The fact that institutions expect large caps to outperform suggests they are not expecting a conventional market recovery next year. Traditionally, in the early stages of economic recovery, small caps tend to rebound strongly. This would suggest institutions expect a prolonged ‘flight to quality’ in equities.”

Although portfolio allocations remain largely unchanged, the survey finds that the process by which institutions are looking to achieve exposure and generate performance may be shifting. There has been a significant shift away from quantitative approaches in favour of a fundamental approach, particularly amongst larger institutions, where 80% of institutions with over EUR20 billion under management said they now prefer an approach which appraises attributes such as quality of earnings, products and management.

Commenting on the findings in the survey, Peter Schwicht, Head of Institutional Business in Europe for J.P. Morgan Asset Management said “Although each country differs slightly in their market and allocation views, there is little evidence to suggest that events over the past two years have deterred European institutional investors from equity investing in any significant way. The greater changes are likely to be in how institutions look to achieve equity returns and the investment approaches they will seek out among their chosen managers. Simplicity and transparency are still paramount although investors still appreciate the importance of a diversified portfolio.”

Peter Ball, Head of Institutional Business in UK at J.P. Morgan Asset Management commented on the responses from UK institutions saying, “It is clear that the volatility in equity markets over the last two years has not deterred UK institutional investors. However, UK institutions have, on average, a much larger allocation towards equities than other European countries and we are experiencing a shift of institutions increasing allocations to fixed income and alternatives. I expect UK institutions will become more in line with the rest of Europe from an asset allocation perspective in the medium to long term.”

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J.P. Morgan Asset Management
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Email: jayne.e.fieldhouse@jpmorgan.com

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Notes to Editors
J.P. Morgan Asset Management is part of J.P Morgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US$1.3 trillion in assets under management (the Asset Management client funds of JPMorgan Chase & Co. as at September 31st 2009) and offices in 40 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

J.P. Morgan Asset Management is a trading name of JPMorgan Asset Management Marketing Limited which has issued this material in the United Kingdom and which is authorised and regulated by the Financial Services Authority.  Registered in England No. 288553.  Registered office: 125 London Wall, London EC2Y 5AJ.

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