This article is the second in the 2016 BCG Value Creators series. In May 2016, we released the 2016 Value Creators rankings, which track the top performers worldwide and in 28 industry sectors on the basis of their total shareholder return (TSR) from 2011 through 2015.
Recent volatility in global equity markets has led to an uptick in bearishness among investors.
According to BCG’s eighth annual investor survey, investors are scaling back their expectations for total shareholder return (TSR) and looking for companies that are building value-creating businesses, not just returning cash to shareholders in the form of dividends and stock buybacks.
The survey—conducted in early 2016 by BCG in partnership with Thomson Reuters, the world’s leading provider of business and financial information—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 every year since 2009 to understand investors’ views on global capital markets and priorities for shareholder value creation.Four themes stand out in this year’s findings:Investors are more bearish—at least about the near term. Thirty-two percent of respondents described themselves as “bearish” or “extremely bearish” about equity markets in 2016—an increase of nearly 70% 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%.Investors anticipate high cash payouts but may have a limited appetite for more. At a time when share buybacks are near record heights, respondents believe that most of the TSR in the next three years—4.4%—will come from cash payouts (dividends and buybacks). But they don’t believe that payouts alone will deliver superior performance. They put a higher priority on other uses of excess cash, especially growth-oriented investments.Investors are looking for new value-creation strategies. In an environment of modest GDP growth, near-record levels of profitability and free cash flow, 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 that have experienced management teams and compelling equity stories based on strong fundamentals and intelligent capital allocation.An Uptick in BearishnessThe rise in bearish sentiment is perhaps the most striking finding of this year’s survey. In 2015, 19% of respondents said they were either “bearish” or “extremely bearish” about the market’s prospects; this year, 32% did. This is the highest percentage since 2009, in the midst of the global financial crisis, when 54% of respondents described themselves this way