Fund buyers keep faith in active management amid volatility
Maintaining portfolio weightings
Three-quarters of professional fund buyers continue to back active portfolio managers to outperform in 2019, with 83% of the group expecting greater volatility throughout the remainder of this year.
A Natixis survey, published on Monday (29 April), revealed volatility in equity markets to be a key concern of fund buyers, 78% of which still expect interest rates to increase this year, despite signals to the contrary.
Is a US recession on the cards?
The US Federal Reserve, among other central banks, has begun to progressive rate rises, but 58% of the 200 investors surveyed by Natixis identified hikes as the biggest portfolio risk in 2019.
In addition, the Concerns and Expectations of Professional Fund Buyers for 2019 report found 63% of those surveyed expect this year to herald an end to the long-running US bull market, while 78% warned of the impact of trade disputes.
Three-quarters of those surveyed also said they were concerned with growing speculative bubbles, while 60% said that post-Global Financial Crisis regulation has done little to mitigate such market risks.
Amid this investment environment, head of global wholesale at Natixis Investment Managers Matthew Shafer said fund buyers are "increasingly seeing the long-term value that can be generated by active management", to which he expects allocations to "remain relatively constant over the next three years".
He added: "Even in their passive holdings, more than half are allocating more to smart beta than they were three years ago, which confirms that global fund buyers are diversifying traditional passive positions into other strategies."
The effect of the market outlook has been to see buyers lower long-term return expectations to 7.7% from 8.4% last year.
However, despite the increased sense of risk, fund buyers are not expected to make wholesale asset allocation changes in 2019, while they will maintain a bias towards risk assets.
Allocations to equities will be trimmed slightly from 44.2% of 2018 portfolios to 43%, while fixed income allocations fall by 0.2 percentage points to 31.7%.
The largest increase in allocations is within alternatives, which will increase from 14.6% in the previous year to 15.8%.
Meanwhile, cash holdings will increase from 6.6% to 7.1%, while the proportion of 'other' investments will fall from 2.1% of fund buyer portfolios to 1.6%.
When and how will the next rate rise be delivered?
The Natixis report said: "Even while slightly lowering their 2019 allocation to equities, professional fund buyers still favour that asset class.
"As study after study about investment returns has concluded, equities offer the potential for greater returns over time than other asset classes, despite the greater risk.
"Even when market turndowns and crises test their clients' risk tolerance, and although they are not blind to potential speculative bubbles, professional fund buyers continue to take the path indicated by experience and choose equities."
