To better understand investor strategies during the transitional period presented by the Covid-19 pandemic and the emergence of the variants of the virus, data provider Coalition Greenwich launched its report for the third quarter of this year, in conjunction with the World Gold Council’s half-year outlook and exchange-traded fund report for June.

The results from the study, titled ‘Rethink, Rebalance, Reset’, show that, in addition to the now decade-old quest to meet return targets in a low-yield environment, institutional investors face a new set of challenges as they position portfolios for the post-Covid-19 period.

Among the most important was the need to protect their portfolios from mounting inflationary risks, says Greenwich investment management head Andrew McCollum, who notes that the growing demand for inflation-hedging tools is helping to drive an expansion of institutional allocations to gold, which institutional investors also view as a valuable source of portfolio diversification and potential long-term, risk-adjusted return enhancement.

The institutional investors participating in the study say decisions about short- and long-term portfolio allocations are being driven by two primary concerns - the need to meet return objectives in a prolonged low-yield environment and the need to rebalance portfolios after a historic run-up in equity valuations.

After these basic considerations, the study results begin to show the more nuanced impact of the current transitional period on investor thinking, says McCollum.

Forty-five per cent of study respondents include interest rate projections as one of the top three drivers of long-term portfolio allocations.

For short-term allocations, half of institutions cite liquidity concerns as a top-three driver, and about 40% cite interest rate projections, reflecting concerns about both near-term market conditions and the threat of inflation.

Overall, these allocation plans reflect the uncertainty facing investors at the end of the Covid-19 crisis.

With the future outlook unclear, there is little consensus among investors about how to position portfolios over the next three years.

Instead, McCollum notes that individual institutions are moving to prepare their portfolios for the scenarios they see as most likely, whether that is a reversion to the “goldilocks” environment of muted inflation and steady economic growth, a shift to a new inflationary period or a sudden deflation of asset values.