Industrial Sector Poised For Investment Uptick Despite Expectations, Baird Survey Reveals
Ninety-one percent of investors expecting to increase or maintain allocation in 2016
MILWAUKEE, December 1, 2015 – Investment in industrials is expected to remain a focus despite continued headwinds stemming from weaker commodities and lower export activity according to a survey released today by Baird, an employee-owned international financial services firm and one of the FORTUNE 100 Best Companies to Work For®. Nearly half (46 percent) of investors plan to increase their investment in industrials in 2016, with another 45 percent reporting they will allocate an unchanged or similar amount in the year ahead. Only 9 percent of respondents said they were planning to scale back.
The survey polled institutional and private equity investors, portfolio managers, analysts and industrial executives at the 45th annual Baird Industrial Conference held at the Four Seasons Hotel in Chicago, Illinois. The poll was designed to identify what industrial professionals believe are the key drivers and threats to profitable growth in the industry in the year ahead. The majority (52 percent) of survey respondents reported being most optimistic about opportunities within North America followed by Western Europe (21 percent). When looking at which end market represents the strongest opportunities for growth, those polled cited residential and commercial construction (35 percent) and aerospace and defense (31 percent) as the most promising in the year ahead.
"While it is encouraging to see optimism for a potential rise in investments to the industrials market in 2016, our strategy is to maintain a cautiously optimistic view," said Jon Langenfeld, CFA, Head of Global Equities at Baird. "Assessing and managing future threats will continue to be critically important for the industry to realize its growth objectives.
According to the survey, factory automation continues to be an area of interest and curiosity for the industrial market. In fact, 38 percent of respondents believe innovations related to factory automation will have the most significant impact on the industrial market over the next five years. This is followed by big data analytics (21 percent), data security (17 percent), autonomous vehicles (13 percent) and additive manufacturing (11 percent).
Taking a more immediate look at the 12 months ahead, lack of growth in China ranked as the top threat to returns in the industrial sector for 2016 (39 percent). Other concerns included interest rate hikes (28 percent), commodity price shock (16 percent), geopolitical risks (14 percent) and large-scale cyber attacks (3 percent).
"It's understandable that respondents reported having some apprehension about China given the economic concerns within the emerging markets that have impacted the global investment markets," Langenfeld said. "As long as the Chinese government remains committed to cultivating sustainable growth, we expect to see investment opportunities in companies directly and indirectly operating in this market."
Note to Editors
Baird conducted a survey of conference attendees at the 2015 Baird Industrial Conference in Chicago, Illinois, between November 9-11, 2015. Percentages are based on 150 responses spanning sentiment from industrial executives, analysts, portfolio managers and institutional and private equity investors.
Baird is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Established in 1919, Baird has more than 3,200 associates serving the needs of individual, corporate, institutional and municipal clients. Baird has $152 billion in client assets. Committed to being a great place to work, Baird ranked No. 5 on FORTUNE's 100 Best Companies to Work For in 2015 – its 12th consecutive year on the list. Baird's principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird's investment banking and private equity operations. Robert W. Baird Limited and Baird Capital Partners Europe Limited are authorised and regulated by the Financial Conduct Authority. For more information, please visit Baird's Web site at rwbaird.com.
Baird Industrial Conference 2015 Survey Findings
Investment Outlook for Industrials
When asked about plans for investment allocation or recommended allocation to industrials in 2016, nearly half of respondents said they planned to increase their investment levels (46%) in the year ahead, while 45% said their investment would remain consistent with activity from 2015.
More than half of respondents (52%) are most optimistic about opportunities for the industrial sector in North America, followed by Western Europe (21%). Looking at which end market will provide the strongest opportunities in the year ahead, 35% of respondents are most optimistic about residential and commercial construction, followed closely by aerospace and defense (31%).
- North America
- Latin America
- East Asia (excluding China)
- Western Europe
- Residential & Commercial Construction
- Aerospace & Defense
Threat to Returns
Thirty nine percent of respondents believe that lack of growth in China represents the biggest threat to the industrial sector in 2016. This is followed by interest rate hikes (28%), commodity price shocks (16%) and geopolitical risks (14%).
- Interest rate hikes
- Lack of growth in China
- Geopolitical risks
- Commodity price shock
- Large scale cyber attacks
Factory automation continues to be an area of interest and curiosity for the industrial sector. According to the survey, 38% of respondents believe innovations related to factory automation will have the greatest impact on the industrial market in the next five years. This is followed by big data analytics (21%).
- Autonomous vehicles
- Factory automation
- Additive manufacturing
- Data Security
- Big data analytics