KBW Survey Shows CIOs Returning to Actively Managed Equity

This winter, institutional investors are putting their money back into actively managed equity, with much of the flow pouring into international strategies, according to a Keefe, Bruyette & Woods survey released Monday.

In the second edition of KBW North America Equity Research’s Chief Investment Officer Survey of 45 decision makers, about 32% of CIOs said they expect to increase their allocations to active long-only equities over the next three years while 25% expect to decrease. That stands in contrast to the results of KBW’s prior survey, where active equity was poised to lose market share.

International equities are expected to fare particularly well.

“Within equity strategies 60% expect to increase their allocation to international strategies, suggesting that incremental demand could flow mainly to international strategies,” KBW analysts led by Robert Lee reported in a news release.

Benefiting from this trend will be asset managers with large international equity businesses, such as Franklin Resources (BEN), BlackRock (BLK), Affiliated Managers Group (AMG) and T. Rowe Price (TROW), KBW reports. Another company likely to benefit is cross-border index provider and exchange-traded fund (ETF) licensor MSCI Inc. (MSCI).

In fact, BlackRock (BLK) seems particularly well positioned among publicly traded traditional managers to benefit from some of the trends identified in the report. These trends also should be generally favorable for alternative managers Blackstone (BX), Fortress (FIG), KKR (KKR), and Och-Ziff (OZM).

More highlights from the KBW Winter 2011 CIO Survey:

• Alternatives and passive strategies are attractive, while fixed income could lose a little market share.“Consistent with our last survey respondents generally expect to increase their allocations to passive and alternative strategies, but in contrast to our last survey fixed income strategies look set to lose some market share, a victim of the ultra low rate environment,” according to KBW’s equity researchers. “However, it appears that the trend to passive strategies may be somewhat less than many observers perceive, although it remains generally positive.”
• About 41% of respondents expect to increase their allocations to hedge fund strategies versus only 7% that expect to decrease their allocations.
• 23% of respondents expect to increase their private-equity allocations and 36% expect to increase their real estate allocations.

Designed to gain insight into institutional investors’ asset allocation and manager selection, New York-based KBW’s CIO survey extends to decision makers at corporate and government pension plans, endowments, foundations and investment managers. New York-based KBW is an institutionally oriented securities broker-dealer and investment bank that specializes in the finance sector.

Read about KBW’s forecast for mutual fund flows at AdvisorOne.com.