Investing pros are optimistic about the economy, but are far less confident about achieving their own objectives post‐pandemic.
Adding to what mutual fund mainstay MFS Investment Management calls “this sanguine sentiment,” the firm’s survey of institutional investors showed that more than 60% agree some industries will not recover, with more than 40% agreeing that COVID‐19 has created investment opportunities. Additionally, 35% agree markets do not fully reflect the long‐term economic impact of the pandemic.
When questioned about their top concerns over the next 12 months, 68% of U.S. institutional investors expressed their fear of market asset bubbles, and 57% were worried about growing government deficits.
Unsurprisingly, 56% highlighted stock market volatility, and 47% cited the potential for another global recession.
“While there has been an overall recovery in spending driven by pent up demand across various sectors of the U.S. economy, the global disruptions across industries, markets, and regions stemming from the pandemic have left institutional investors uncertain,” Kim Hyland, Managing Director and Head of MFS’ Global Client Group, said in a statement. “This sentiment demonstrates that a renewed focus on long‐term, fundamental investing will be key to addressing uncertainty at both the industry and individual security level, post‐pandemic.”
Government failure
While pandemic disruptions have created uncertainty, 67% of institutional investors believe their organization coped well with the impact of the pandemic. Yet, many see the larger U.S. investment industry and government coming up short. Only 29% agreed that the industry coped well, falling to only 7% for the U.S. government.
Health crisis
The human impact of the pandemic has not been lost on institutional investors. Nearly half expressed their concern for the health crisis brought on by the global pandemic. In addition, 16% highlighted their staffs’ health as a potential challenge over the next 12 months, approaching and even surpassing similar levels of concern around technology/cyber threats (10%), geopolitical‐driven volatility (21%), and pandemic‐related business disruptions (10%).
“Concern for individual employees clearly shows through among respondents, and we foresee this trend continuing as many organizations, not just investment firms, use the experience of the pandemic to reconsider the way they see the value their employees bring to their organizations,” Hyland added.
ESG influence
The notion that institutional investors are emphasizing the human element within their organizations speaks to the growing impact of environmental, social, and governance (ESG) factors and sustainable business practices brought to the forefront by the pandemic. However, the firm said it remains to be seen if it will translate to investment action by those same organizations.
More than 40% of U.S. institutional investors agree that sustainability will be more critical due to the pandemic going forward. However, only 17% agree the pandemic will accelerate the adoption of ESG investments or strategies due to the pandemic.
“We continue to see U.S. institutions ramping up their engagement with us regarding sustainability,” Hyland concluded. “While the pandemic has exposed significant gaps in the social contract, moving the needle in terms of how to think about sustainable investing and the material impact of ESG factors remains a challenge for many U.S. institutional investors emerging from the pandemic.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
