Are Institutional Investors Out of the Woods?

As institutional investors glaze over inflation expectations, many are mystified with the recent global equity rally.

managers

Wasn’t post-Brexit supposed to deliver a wave of chaos to markets? Should investors thank the Bank of England for its recent actions or was there over-panic regarding Brexit? Astonishingly, the Citi G10 Economic Surprise Index has risen to recent highs against the setting of one of the most significant political-economic events, according to the plethora of financial media commentators. The index measures data releases versus economists’ prior expectations. When data comes in weaker than expected, the index declines. When data comes in stronger than expected, the index inclines. Helsinki-based Etera Mutual Pension Insurance Company posted a 1.3% return for the first half of 2016, in which the investor’s Chief Executive Stefan Björkman said in a public release that, “Brexit did not rattle Etera’s investment portfolio or solvency.”

Other institutional investors such as Canadian and U.S. pensions have signaled their intentions to remain allocated to the United Kingdom. Even Norway is committed to remain investing in the U.K. Norway’s sovereign fund returned 1.3% for its second quarter 2016 period – equities contributed 0.7%. In fact, equities make up 59.6% of the wealth fund’s allocation at the end of June 2016. If equities were to continue to rally, the sovereign investor would greatly benefit, offsetting losses in past quarters.

Are We Out of the Woods?

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