Baring's Marino Valensise examines the key trends being followed by institutional investors in 2012.

1. Fixed Income – For pension funds, the trend towards a higher allocation to fixed income investments will continue, due to the regulatory environment. However, the flat or negative real yields offered by long-dated bonds in a variety of markets will make investment sub-committees think twice, before executing at these levels. Emerging Market Local Currency Debt is still under-represented in institutional portfolios and the most recent volatility slowed inflows. Given the strengths of the macro data for emerging countries, I have no doubt that this asset class will regain favour with institutional investors.
 
2. Equities - One clear trend is the globalisation/internationalisation of the equity exposure of institutional investors. In the US, more domestic portfolios will be switched into strategies based on EAFE, ACWI ex US and ACWI indices. In general, large cap domestic products will continue to be commercially challenged by passive replication vehicles (passive funds, ETFs).  Allocations to emerging markets have probably slowed in the last six months, given the market volatility. However, the market is now offering a great entry opportunity to investors who have got little exposure. Recent surveys indicate that US pension fund exposure to emerging markets is still very modest, hence there is plenty of space for a substantial increase.
 
3. Alternatives – After the difficult years in the UK and US real estate markets, property has become more attractive and may be perceived as a good proxy for fixed income. Rental yields are high and property values have already taken a hit. In the alternatives space, this relative value consideration is probably the most interesting development.