Fund buyers aim to stick largely with equity products this year, despite their growing market concerns, but they plan to alter the mix of their stock and fixed-income portfolios and to continue raising their allocations to alternative investments, a new poll shows.
The global survey by Natixis Investment Managers canvassed 200 respondents including product selectors at banks, insurers, pension platforms, wealth managers and funds of funds.
The results underscore the dilemma that investors in general face in trying to balance their eager hunt for yield with the growing late-cycle dangers they can see ahead.
The Natixis poll was conducted in October and November 2018, though the results, many of which chime with institutional investors’ thinking, are only being released today.
Although the research took place before the strong rebound in stock markets this year, it revealed expectations for 2019 that are unlikely to have been dispelled by recent events.
A large majority of respondents said they were worried about greater volatility in equities (83% of those polled), higher interest rates (78%), trade disputes (78%), growing speculative bubbles (75%) and an end to the US bull market (63%).
CHANGING FUND BUYER ALLOCATIONS
That would explain why close to half (44%) planned to cut their allocations to US stocks, with only 20% targeting an increase.
By contrast, 39% were targeting higher exposure to emerging market equities, as against 17% expecting a decrease – making this the most popular area of stocks.
Fund buyers appear less positive about the prospects for riskier debt. While they aim, on average, to retain the same allocations to fixed income as last year, one-third (34%) plans to cut exposure to high-yield bonds (while 21% plan to raise their exposure to those assets).
Government debt was the most popular fixed-income category, with 29% planning to boost their holdings and 22% to reduce theirs.
FUND BUYERS' PLANNED BOND ALLOCATION CHANGES FOR 2019
Interest rates were a key focus for respondents, with higher rates expected by most and considered a top portfolio risk by more than half. They were more concerned about the pace of potential hikes than the absolute level of rates, according to the survey.
The Natixis research of fund buyers reflects a similar wariness among institutional investors, which feel that almost all market risks loom sharply larger than a year ago, according to a global survey published by Allianz Global Investors earlier this month (see graph below).
MARKET RISKS LOOMING LARGER
Three-quarters of asset owners polled by the German asset manager are extremely concerned or very concerned about the outlook for inflation. Some eight out of 10 felt that way about monetary policy and future market volatility.
At the same time, nearly nine out of 10 respondents think investors generally have grown complacent about risk management in the decade since the crisis. Nearly six in 10 said loose central bank policy has introduced a new level of risk.
As a result, take-up of various risk-management tools – such as risk budgeting, dynamic asset allocation, inflation-protection strategies and tail risk management – has risen sharply (see chart below).
SHARP TAKE-UP OF NEW RISK MANAGEMENT STRATEGIES