Sovereign wealth funds favour equity bets for next 12 months: Survey

Sovereign wealth funds broadly plan to raise exposure to international equities in the coming 12 months, a survey showed, suggesting that the stock market bullrun is set to continue.

The survey, conducted by the U.S.-based Sovereign Wealth Fund Institute, covered 26 funds with an estimated $2.18 trillion in assets under management. It was carried out in November, a period when global equities pushed to record highs, raising questions about the rally’s longevity. The results, sent to media late on Wednesday, showed some 41 percent of funds were planning overweight positions in equities in actively-managed strategies.

Another 41 percent of respondents said they would hold exposure to the asset class “at the same level” and two-thirds said the same for passively-managed international equities.

The funds as a whole have been net sellers of publicly-listed securities held through third-party asset managers over the last 13 quarters, according to separate data from research firm eVestment.

But the Institute survey, which consulted asset owners directly, showed a sizeable portion were interested in staying invested.

The biggest shift was towards emerging equities, with 66.7 percent planning to overweight this sector, which is one of this year’s strongest performers with returns of almost 30 percent.

In terms of sectors, information technology and consumer staples were cited as the biggest planned overweights, with 19 percent opting for each of these. Real estate was singled out by 17 percent of respondents as a potential 2018 overweight.

There were also signs of concern about equity valuations. Eight respondents said a stock market bubble was the biggest tail risk, while the Institute’s September poll had found only three funds identifying this as the main risk.

Technology shares have rallied hard for most of this year, but have sold off over the last week as investors have begun to rotate out of tech and into financials, betting on U.S. deregulation and tax cuts.

U.S. tax reform was cited by nine respondents as likely to be the biggest driver of equity prices in the next six months .

Looking at geographical allocations not limited to equities, a third planned to overweight Europe excluding Britain, 21.7 percent said the same for Japan, and 20.8 percent favoured the United States.

Emerging market debt also remained in favour, with 28.6 percent saying they planned to overweight this sector in the next 12 months, and another 9.5 percent aiming to “significantly” overweight it.

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