Morgan Stanley Research released a report yesterday titled “North America Financials: 2014 Outlook — Expectations Rise In The Search For Returns.” The bulk of the report comprised the 2014 Morgan Stanley Financial Survey. The 2014 MS Financials Survey was conducted in late December last year and there were 183 total respondents to the survey. The individual results were blinded, but the pool of respondents was 60% long only investors and 40% Hedge Funds/other. Half of the invited respondents are professionals in the financial industry and the other half are generalists.
Investors bullish on financials in 2014
The primary takeaway from the MS survey was the general optimism of investors today. Not only did 76% of the respondents reply that they expected the S&P 500 (INDEXSP:.INX) to be up in 2014, 28% of them chose financials as the sector most likely to outperform this year.
Almost half of the investors surveyed were currently “Overweight” in the financials sector (vs. 35% in 2013 and 30% in 2012). Around 35% of respondents reported they were “Equal-weight” on the financials (vs. 39% in 2013 and 27% in 2012), and only 16% said they were “Underweight” (vs. 26% in 2013 and 43% in 2012).
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
Large cap banks expected to perform best
Slightly over 40% of the respondents to the survey reported they felt that large cap banks was the sector most likely to “perform best” in 2014. Expectations for mid-cap banks are, however, down for 2014, with only 11% of respondents suggesting that the mid-cap banking sector would perform best this year.
Major change in investor sentiment towards life insurers
Around 15% of respondents suggested that life insurance companies would be the best performers in 2014, up from 13% in 2013. Negative sentiment towards life insurers has also dropped precipitously over the last year, with those expecting the life insurance sector to be the worst performing sector dropping from 18% on 2013 to just 5% in 2014. The general theme was the potential for rising interest rates to increased margins for insurers.
REITS expected to perform worst
Investors are extremely bearish regarding the performance of REITS in 2014. In 2013, only 18% of respondents to the MS survey chose REITS as likely to be the “worst performing” sector. Negative sentiment toward REITS has mushroomed over the last 12 months, however, with almost 48% of the respondents to this year’s survey selecting REITS as likely to be the worst performers in 2014.