Investor interest to shift from income to growth, ING IM predicts

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Equities are likely to become the most favoured asset class in the second half of 2013 as investor focus moves from income-generating assets towards growth, forecasts from ING Investment Management say.

In its annual Mid-Year Outlook, the asset management house points out that this shift in sentiment started in late April and appears to have remained in place despite the recent correction in the markets.

Furthermore, the report notes that cyclical sectors largely outperformed defensive sectors in the equity markets during May. Over the first four months of the year, the rally was led by ‘bond-proxy’ defensives while cyclicals lagged.

ING Investment Management head of strategy Valentijn van Nieuwenhuijzen adds: “Next to defensive equity sectors, other previously popular ‘yield’ plays like real estate equities and fixed income assets came under significant pressure.

“However, over the next couple of years, equity returns will start to firmly outperform fixed income returns and global reflation and higher interest rates will create more regulatory room to move towards higher equity allocations for pension fund managers and insurance companies.

“This will signal a reversal of the massive relocation of savings into fixed income assets ‘forced’ on institutional money managers by the combination of financial crises and regulatory changes over the past 15 years.”

The firm believes that investors are paying more attention to attractively-valued cyclical companies which offer growth at a reasonable price rather than defensive sectors such as consumer staples and healthcare, which have become relatively expensive as investors’ hunt of yield intensified over recent years.

Van Nieuwenhuijzen says: “We believe that the trend towards cyclical companies could continue. Aside from the valuations and the current relative underweight in investment portfolios, there are a number of other reasons for our outlook.

“For instance, due to the upturn in economic data, there is again an upward trend in economic surprise indicators in the 10 largest developed economies.”