“Volatile markets and heightened risk awareness continue to make asset allocation very challenging, as investors balance priorities such as long-term de-risking, short-term market opportunities, rebalancing and maintaining a strategic asset allocation mix. In terms of specific asset classes, we think that government bonds do not represent great value at the moment and that equities represent relatively better value. However, it is challenging to know how to respond when the goal for many funds is to reduce risk overall and diversify from existing equity holdings. As a result, many funds are buying fewer bonds than before, and those that are considering adding risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities,” said Stroud.According to the study, real GDP growth expectations for 2013 continue a downward trend and range from just above 0% in the Eurozone (0% in 2012) to 7.5% in China (8.0%), followed by 2.5% in Australia (3.0%), 2.0% in the U.S. (2.0%), 1.0% in the U.K. (1.0%) and 0.9% in Japan (1.5%). With the exception of China, managers’ 10-year GDP growth forecasts are slightly above their one-year view, but below historical trends. The survey shows that managers expect unemployment to remain a tough challenge for some Western economies, especially for the Eurozone countries implementing fiscal austerity measures. According to managers, expansionary monetary policies are expected to hold in 2013, with exceptionally low interest rates in some Western economies, but to gradually tighten in the years ahead. Inflation is viewed as a moderate near-term risk, with some very concerned about long-term inflation risk in both the U.S. and Europe. Turning to 10-year government bond yields, for 2013, managers predict the continuation of a downward movement of yields to historic lows, reflecting persistent economic weakness and continued central bank asset purchases. Predicted yields on 10-year government bonds have fallen in every market since the 2011 survey, with the U.S. falling from 3.8% to 2.0%, mirrored by the U.K. (4.0% to 2.0%), the Eurozone (3.5% to 2.0%), Australia (6.0% to 3.3%), Japan (1.6% to 1.0%) and China (5.0% to 3.8%).