One hundred and fifty-two major international insurance companies. A cool $3.8 trillion in assets. And what do they think the best near-term investment is? U.S. stocks.
Goldman Sachs' asset management arm just released results from its extensive survey of insurance-company chief investment officers from around the globe. In many respects, the results aren't surprising at all. The main risk that the CIOs see right now is the European debt crisis. Meanwhile, they consider the low-yield investment environment to be the biggest risk to their portfolios.
A less obvious view though, was the expectation that U.S. stocks are the best investment right now. The report reads:
In the near term, insurers anticipate US equities (18%), private equity (15%), mezzanine debt (9%) and high yield (9%) to offer the highest return of all asset classes surveyed. Insurers have the lowest return expectations for cash and European financial credit and intend to decrease their allocations to these asset classes in the next 12 months.
Among the other asset classes that U.S. equities beat out were hedge funds, energy master limited partnerships, and emerging-market equities. In addition to the fact that 18% of the CIOs chose U.S. stocks as the best-performing asset class, the percentage that flagged it as the potential worst-performing group was essentially nil. And when asked whether the S&P 500 would be higher or lower in 12 months, 76% of the respondents said higher.
Just out of reach
Just because CIOs representing nearly $4 trillion in assets see U.S. stocks as the best current investment opportunity doesn't mean we're going to see a sudden rush of interest, though.
Many Foolish investors may think of truly great equity investors like Markel's (NYSE: MKL ) Tom Gayner and Berkshire Hathaway's (NYSE: BRK-B ) Warren Buffett when it comes to insurance companies, but the truth is that most insurance companies aren't big stock investors. To put that in numbers, at the end of 2011, Berkshire had nearly $76 billion in equity securities in its insurance business versus $30 billion in fixed-income securities. Over at MetLife, at last year's end the equity portfolio was at just over $3 billion, while the insurer's total portfolio was close to $500 billion.
Not every insurer has a Buffett or a Gayner, nor are most interested in one -- their focus is more on being operationally efficient, protecting assets needed to meet claims, and otherwise earning a safe, conservative return.
It shouldn't be all that surprising, then, that despite the apparent bullishness on stocks, only 21% of the CIOs are planning to increase their allocation to stocks over the next year. Another 34% plan to keep their equity allocation the same, while 35% don't invest in stocks at all.
Their loss = your gain?
So we've got more than 150 tapped-in investors that are overwhelmingly saying that U.S. stocks will perform well -- if not be the best-performing asset class -- over the next year. And yet it's also a group that has its hands tied when it comes to taking advantage of that view.
That's tough luck for them, but perhaps good news for those of us that can take advantage of the situation.
For investors that want to increase their U.S. equity exposure while doing as little work as possible, I'd be quick to recommend low-cost index funds that track the S&P 500. Larger-cap U.S. stocks may be particularly interesting, and that would bode well for the Dow Jones (INDEX: ^DJI ) index and index funds like the SPDR Dow Jones Industrial Average ETF that track it.
But for those investors interested in individual stocks, thanks to Securities and Exchange Commission filing requirements, those two top-notch insurance-company investors -- Buffett and Gayner -- have to tell us exactly what they're buying. Between the close of last year and the first quarter of this year, here are a few stocks that got a big vote of confidence from those two investors.
Amount Owned Dec. 31, 2011
Amount Owned March 31, 2012
||3M (NYSE: MMM )
||General Electric (NYSE: GE )
Source: S&P Capital IQ.
Those two aren't the only ones that are excited about U.S. stocks, though. The investors at Motley Fool headquarters dug into the list of Dow Jones companies and found three stocks that they think need to be on your radar. For a peek at these top stock picks, grab a free copy of the special report: "The 3 Dow Stocks Dividend Investors Need."