Pension and insurance funds in the Nordic region plan to cut into their fixed income holdings and increase their exposure to equities, private equity and real estate – according to the results of nrpn’s first-ever pension and insurance fund survey that encompassed seven investors with E27.5bn worth of assets under management.

Indeed, the study found that three of the seven polled investors intend to allocate more of their assets to equities and private equity before March next year, while four respondents plan to reduce their bond exposure. Two investors also said that they intend to increase their exposure to real estate over the next six months with one investor planning to up its allocation to hedge funds.

At the same time, however, three investors said that government as well as emerging market bonds would be the most interesting of all the fixed income assets over the next six months with just one investor expecting corporate bonds to be the most attractive asset class. One investor said that high yield paper would be the most attractive fixed income asset class over the next six months.

The survey also found that all respondents allocate, on average, 51.4 per cent of their total holdings to bonds with 5 per cent of their assets allocated to real estate, 2.5 per cent to hedge funds, 1.3 per cent held in private equity assets, 2.7 per cent in cash and 37.1 exposed to equities. On an individual basis, the highest allocation to fixed income was 71 per cent of total assets and the highest individual exposure to equities was 63 per cent. The lowest exposure to stocks by any one investor was 20 per cent.

And on the equity-side investors expect Asia (excluding Japan) to be the best performing sector over the next six months with returns of 10 per cent. Respondents were also very optimistic about the Japanese market with average forecasts of 8.3 per cent compared to returns of 7.5 per cent for eurozone equities and 4.5 per cent for emerging market stocks.

Investors were less optimistic about the US market and expect it to pull in 5.8 per cent over the next six months. At the same time, three of the respondents said that they expect the US Federal Reserve to increase interest rates three times over the next six months, while two investors said that they believe the Fed will raise rates just once with one respondent expecting the Fed to leave rates as they are and one investor anticipating that the US will increase rates twice.

The survey, which was sent out to investors prior to the Hurricane Katrina disaster in the US, also asked investors at what level they thought the price of US oil would settle over the next six months. Following the disaster the barrel price of oil was pushed above $70, however, all the seven respondents to nrpn’s survey said that the price of crude oil would settle somewhere between $55 and $64 by March next year.

Out of the seven polled investors, six said that they expect world growth prospects to be positive over the next six months with one respondent expecting world growth to be neutral over the same period.

Figure one: average equity market forecast returns for next six months

Figure two: how many times do you think the Fed will raise rates
over the coming six months?

Figure three: which fixed income assets will be most interesting over the next six months?

Figure two: average asset allocation of participants

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