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Pressure to Perform: Research by State Street Global

Advisors Finds Distinct Contradictions in Investor Behavior
on Balancing Reward with Downside Risk
SYDNEY, 14 May, 2015 Global institutional investors have continued to buy developed and emerging market equities
despite concerns about overvalued prices and a likely correction in the near term, new investor behaviour research by
State Street Global Advisors (SSGA) has found.
The research, conducted with Longitude Research in January, highlights a number of contradictions as investors, under
pressure to meet return expectations and funding commitments and facing a lack of attractive alternatives in other lowyielding asset classes, have been forced to increase their risk appetite.
It canvassed 420 chief executive officers, chief investment officers, portfolio managers and directors at private and public
pension funds, endowments, foundations and sovereign wealth funds in America, Europe and Asia Pacific.
The research shows a continued push into equities with 63 percent of global investors and three quarters of Asia Pacific
investors increasing their allocations to developed market equities in the six months leading up to the survey.
Almost one in two global investors (48 percent) and 51 percent of Asia Pacific investors surveyed had continued to buy
emerging market equities during that time.
Most investors, particularly those based in Asia Pacific, increasingly expect to see a correction of 10-20 percent in
developed and emerging equity markets in the near term. While 57 percent of global investors surveyed believed
developed markets would contract between 10-20 percent in the near future, that figure rose to 67 percent among APAC
respondents.
More than half (57 percent) of APAC investors in line with the global figure said they also expected a correction in
emerging markets soon.
The main factors they said could lead to a possible correction in all markets were rising geopolitical risk and a slowdown in
emerging markets.
Interestingly, despite the widespread expectations of a correction, investors globally showed a high degree of confidence
in their ability to withstand a downturn. About 96 percent of APAC investors expressed that view, higher than the 89
percent in Europe and the US.

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APAC investors said they had done relatively little to protect their portfolios against a downturn, in contrast to their peers
elsewhere. Some 68 percent said they had made no change to their level of downside protection and generally accepted
that volatility was the new normal.
Three out of five APAC investors said they believed hedge fund strategies offered the most effective protection despite the
comparatively high cost compared to other strategies.
Investors are facing a difficult balancing act: while many are concerned about a potential downturn and would prefer to
reduce their equities exposure, they need to hold equities if theyre going to have any chance of meeting their long-term
return expectations, Mark Wills, head of SSGAs Investment Solutions Group for Asia Pacific, said.
But their confidence in being able to weather a sharp correction is potentially misplaced, he said. As we saw during the
global financial crisis, the traditional diversification strategies adopted by a large number of investors have limitations in
preventing significant capital losses.
If investors believe volatility is here to stay, they would be well-advised to address portfolio risk and investigate lowercost solutions such as investing in low volatility equities, managed volatility indices and objective-based strategies which
measure against a desired result rather than a traditional index.
Asset managers can play a role in helping investors better understand such strategies and work collaboratively with
clients to develop solutions with the right level of security, Wills added.
For more information and to read the full research report please click here.

About State Street Global Advisors

For nearly four decades, State Street Global Advisors has been committed to helping our clients, and those who rely on them achieve
financial security. We partner with many of the worlds largest, most sophisticated investors and financial intermediaries to help them
reach their goals through a rigorous, research-driven investment process spanning both indexing and active disciplines. With trillions* in
assets, our scale and global reach offer clients unrivaled access to markets, geographies and asset classes, and allow us to deliver
thoughtful insights and innovative solutions.
State Street Global Advisors is the investment management arm of State Street Corporation.
*Assets under management were US$2.82 trillion as of December 31, 2014. This AUM total includes the assets of the SPDR Gold Trust
(approx. $27.3 billion as of December 31, 2014), for which State Street Global Markets, LLC, an affiliate of State Street Global Advisors,
serves as the marketing agent. Please note that AUM totals are unaudited.

State Street Global Advisors

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