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Investment Pros Want Diversification, Low-Risk Assets Before 2024

According to a new study, investment professionals will be preparing portfolios for risks from geopolitical war and economic slowdown in 2024, seeking increased exposure to low-risk assets while diversifying holdings.

Around half of those polled projected a modest economic decline in the coming year, with 52% increasing the length of their bond holdings in response. According to the MFS Investment Solutions group’s 2023 Asset Allocation Survey, over one-third of respondents plan to grow their investment in US credit over the next year.

The study questioned asset managers what trends they expected to see in the next years, and 28% said they planned to reduce their investments in limited-maturity fixed income products, indicating that some were ready to shift funds into the market.

“Recent actions taken to de-risk portfolios are understandable, as we believe the full effects of higher interest rates have yet to be felt,” said Jonathan Barry, managing director at MFS. “That said, higher rates make fixed income more attractive now, and our survey shows that investors see opportunities across a number of asset classes.”

Investing Managers Avoiding Large-Cap Stocks Examining Private Equity
Small-cap and mid-cap companies are expected to outperform large-cap stocks in the next one to three years, according to 60% of investment managers. Respondents expect the strongest returns from small-cap companies, with 43% planning to expand their investments in this category, while 28% want to add midcap stocks to their managed portfolios.

Over the coming year, nearly one-fifth of investment managers want to reduce their holdings of large-cap equities, while 37% plan to increase their assets in overseas stock markets. Twenty-seven percent more stated they would increase their holdings of developing market shares.

Managers are also looking beyond the equity markets to other asset classes, with almost one-quarter planning to expand investment in infrastructure projects and approximately 20% wanting to increase their exposure to private equity and debt.

“Being mindful of risks and valuations while seeking portfolio diversification makes sense at this stage of the cycle,” he added.

In response to the challenging market situation, 32% of respondents stated they will increase their usage of active methods, while 62% will retain their exposure to active management.

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