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Active Management

Investment Manager PulseInvestmentManagerPulse

Apr 20, 2022

This quarterly survey of senior investment professionals gauges managers’ views on the economy, financial markets, and risks to their portfolios.

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SIRG’s Investment Manager Pulse, Where Professional Investors Are Finding Opportunities, gauges managers’ views on the economy, financial markets, and risks to their portfolios.   

INVESTMENT MANAGERS HAVE BECOME MORE CAUTIOUS WITH INCREASING RISKS 

A few key takeaways from this quarter’s survey are: 

  • The Russia/Ukraine conflict, inflation, and a hawkish Fed are the risks investment managers are most concerned about. Focus on COVID as a driver of market performance has continued to fade as investors focus more on the implications of the Russia/Ukraine conflict, inflation, and the Fed’s hawkish shift for the global economy and asset prices. 
  • The rate of global economic growth is expected to slow in 2022. Eighty-four percent of investment managers expect the rate of global GDP growth to decline over the next year, up from 52% last quarter. Eighty-one percent expect US growth to slow, up from 65%. For perspective, the median forecast for US growth over the next year is 3.0%, robust, but well below the actual 5.7% growth rate in 2021. Investors put the odds of a recession over the next year at 20%, with the chances increasing to 50% over a three-year horizon. 
  • Inflation expectations remain elevated over the next year, but longer-term forecasts have fallen from last quarter. Core inflation, as measured by the Core Consumer Price Index, for the 12 months ended February 2022 was 6.4%. Investment managers expect it to moderate to a still elevated 3.1% over the next year. This is an increase from last quarter’s forecast of 2.8%. However, three-year and five-year expectations remain contained at 2.1% and 2.0%, respectively. Both forecasts fell from last quarter, a sign that managers believe that the Fed will ultimately keep inflation under control. The question is how much will they have to slow the economy to do so? 
  • Managers have become less bullish but continue to prefer stocks to bonds. Forty percent of managers remain bullish on US equity, down from 54% last quarter. Only 13% are outright bearish on stocks, which is in stark contrast to bonds where 72% are bearish as most (76%) expect upward pressure on interest rates to continue over the next year. 
  • Within equities, fund managers continue to favor cyclicals over defensives. They are most bullish on cyclical sectors including Industrials, Financials, and Energy and bearish on more defensive Utilities, Real Estate, and Consumer Staples stocks. 
  • Bond investors remain cautious on credit. While valuations have improved with recent market volatility, most are not ready to increase credit exposure given elevated risks. Sixty-one percent expect spreads to be wider a year from now. Only 15% are bullish on investment grade credit and 26% on high yield. 
  • Cryptocurrencies and commodities are viewed as the most “crowded” trades. 
View the highlights
View the full survey

 

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This report is produced by the Strategic Investment Research Group (SIRG), a unit of PGIM Investments LLC, and a research unit of Prudential Financial. SIRG provides research, analysis, and due diligence on investment management firms and the vehicles and strategies they offer. 

The SIRG Investment Manager Survey collects the insights and opinions of senior investment professionals from across the asset management industry. 

This report provides an in-depth analysis of their collective views on the economy, financial markets, and other relevant issues affecting the investment community. 

A total of 68 investment managers responded and are included in this analysis. Data was collected between February 28 and March 11, 2022. 

GDP – The monetary value of all the finished goods and services produced within a country’s borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well. GDP includes all of private and public consumption,  government outlays, investments, and exports minus imports that occur within a defined territory. 

Core CPI – Consumer Price Index (CPI) ex-Food & Energy, often referred to as Core CPI, measures the movement of prices for all items, excluding food and energy, the two most volatile components of the overall CPI. 

The information contained herein has been obtained from sources that Prudential Financial believes to be reliable. Prudential Financial does not guarantee the accuracy or completeness of data received from outside sources, including investment managers. 

 

© 2022 Prudential Financial, Inc. and its related entities. PGIM Investments, Prudential, PGIM, and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. 

 

Investing involves risks. Some investments have more risk than others. The investment return and principal value will fluctuate, and the investment, when sold, may be worth more or less than the original cost, and it is possible to lose money. Past performance is not a guarantee of future results. Since no one manager/investment program is suitable for all types of investors, this material is provided for informational purposes only. Fixed income investments are subject to interest rate risk, where their value will decline as interest rates rise. 

 

For financial professional use only. 

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