Investors Are Becoming More "Bearish"

BOSTON, MA--(Marketwired - May 25, 2016) - Recent volatility in global equity markets has led to an uptick in bearishness among investors, according to a survey released today by The Boston Consulting Group.

The survey -- conducted in early 2016 by BCG in partnership with Thomson Reuters -- received responses from more than 700 portfolio managers and buy-side and sell-side analysts, representing firms that are collectively responsible for approximately $2.5 trillion in assets under management. BCG has conducted the survey since 2009 to understand investors' views on global capital markets and priorities for shareholder value creation.

Key Findings

The key findings of the survey include the following:

• Investors are more bearish -- at least about the near term. Thirty-two percent of respondents described themselves as either "bearish" or "extremely bearish" about equity markets in 2016 -- a nearly 70% increase from 2015 and the highest percentage since 2009, during the financial crisis.
• Survey respondents have modest expectations for TSR. The respondents' bearish sentiment is reflected in their estimate for TSR: 5.5% annually over the next three years, the lowest estimate since we began conducting the survey and considerably below the S&P 500 90-year average of 10.1%. (TSR measures the combination of share price gains and dividend yield for a company's stock over a given period. It is the most comprehensive metric for performance in shareholder value creation.)
• Investors anticipate high cash payouts but may have a limited appetite for more. At a time when share buybacks are reaching record heights, respondents believe that most of the TSR in the next three years will come from cash payouts (both dividends and buybacks). But investors don't believe that payouts alone will deliver superior performance. They put a higher priority on other uses of a company's excess cash, especially growth-oriented investments.
• Investors are looking for new value-creation strategies. In an environment characterized by modest GDP growth, near-record levels of profitability, and high valuation multiples, investors appear to be seeking companies with credible strategies for value-creating growth. They are increasingly interested in companies that are using cash for strategic M&A and those with experienced management teams and compelling equity stories based on strong fundamentals and intelligent capital allocation.

Putting the Findings into Context