(Bloomberg) --
Australia’s largest investors intend to take riskier bets in 2020 as they hunt for returns amid stretched stock valuations and lingering concern about the outlook for global growth.
About half of the 135 investors -- from pension funds to family offices -- surveyed by JPMorgan Chase & Co.’s Australian asset management unit intend to buy more real estate and infrastructure assets in the next 18 months, the firm said Wednesday.
Investors are also looking to riskier private debt as they shift out of traditional fixed income, the survey found.
“We’re seeing Australian clients delving into alternatives across the risk spectrum as they look to strengthen returns, mitigate volatility or generate income,” said Rachel Farrell, Sydney-based chief executive of JPMorgan Asset Management‘s Australian unit.
“Given high stock market valuations and low bond yields, alternatives can offer investors an interesting source of both income and alpha, especially for those who are taking a more outcome-oriented approach,” she said.
It means more of the same for managers of the nation’s A$2.9 trillion pension pot, who have been among the world’s biggest risk takers as they allocate more money outside traditional markets like stocks and bonds. Last year they bought everything from office buildings to airports and took riskier bets in venture capital and private debt as they diversified to hedge against the fragile global economic outlook.
So far it’s paid off, with the median default fund returning 14.7% in 2019, more than double the target of about 3.5% above inflation, according to Chant West.
Still, funds have warned returns won’t be as strong going forward amid over-hyped valuations in developed markets and concerns over the global growth outlook. The International Monetary Fund on Monday predicted the world economy will strengthen at a weaker pace than anticipated in 2020 amid threats related to trade and tensions in the Middle East.
“Investors are cautious and rightly so,” said Kerry Craig, a global market strategist at JPMorgan Asset Management. However, with the imminent threat of a U.S.-led recession receding, “riskier assets are likely to mildly outperform in the coming year,” he said.
Among the survey’s key findings:
- More than one-third of respondents intend to put more money into private credit and cut holdings of traditional fixed income
- Risk assets remain in vogue, with about four-in-five investors either holding or buying more stocks
- Hedge funds remain in favor, with just 9% of funds intending to reduce their allocation to the space
- Almost half of respondents are going to put more money into emerging markets, with one-in-three planning to add to holdings in China and India. That money will come from Australia, as 30% are planning to decrease exposure to their home market
©2020 Bloomberg L.P.
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