From the 128 investment managers surveyed, 44 per cent said they expected the investment strategies of their institutional clients to become more aggressive next year, up from 33 per cent last year.
Towers Watson head of investment strategies Tim Unger said this is an interesting result given that Towers Watson has rated developed market equities as ‘neutral’ compared to a rating of ‘moderately attractive’ 12 months ago.
The survey also showed manager expectations for market returns have improved.
On average, the respondents said they expect equity markets in 2014 to generate returns of 6.9 per cent in the US, 7 per cent in the UK, 8.1 per cent in the Eurozone, 6.5 per cent in Australia, 7.3 per cent in Japan and 8.4 per cent in China.
The return expectations were generally higher for all regions compared with the previous survey’s results, with the exception of China and the US.
The survey also indicated most managers are still bullish on emerging market equities, with 76 per cent stating they are optimistic about the region for the next five years.
It also indicated 78 per cent of respondents are bullish on public entities, while 59 per cent are confident about private equity.
Over half of the managers also said they were bearish on nominal government bonds and investment-grade bonds.
A majority of respondents also believe 10-year government bond yields will remain stable at around three per cent for 2014.
“Interestingly, managers are still bearish about developed-market government bonds and investment grade bonds, even though their expectations are that interest rates will not move much over the next year," said Mr Unger.
“Managers may still find these asset classes less attractive due to the current levels of yields and central bank action, though respondents were also bearish on high yield, even more so than the money market, perhaps reflecting the deterioration in valuation as well as terms of certain ‘covenant-lite’ and ‘payment-in kind’ deals during 2013,” he said.
