Professional fund buyers globally anticipated increased market volatility in 2020, taking a more defensive approach to portfolio positioning, according to a survey by Natixis Investment Managers.
The survey of more than 400 fund buyers – responsible for selecting funds included on private banks, insurance, fund-of-fund and other retail platforms – which was conducted in Q4 2019, found that four-fifths (79 percent) expected greater equity volatility and 72 percent expected higher volatility in the bond markets.
While nobody could have predicted the historic levels of volatility experienced in markets across the globe since February 2020, fund buyers had already signaled they would be taking a risk-averse approach to fund selection in 2020.
Shifting Market Environment
«Against a backdrop of market volatility, professional fund buyers are facing the combined challenges of generating returns, while accounting for downside risk as well as newer risk considerations such as ESG.» Madeline Ho, executive managing director, head of wholesale fund sistribution, Asia Pacific for Natixis Investment Managers, said.
«With further geopolitical risk on the horizon, while fund buyers will be watching market conditions vigilantly, our findings suggest they are well prepared for the current shifting market environment,» she added.
ESG on the Rise
In turbulent markets, ESG is also increasingly being recognized as an important risk factor that active managers can account for. When asked the primary reason for incorporating ESG factors into their investment decision making, 22 percent of fund buyers said to minimize headline risk, 21 percent said to generate high risk-adjusted returns and 19 percent said to improve diversification.
The survey revealed that 62 percent of fund buyers see increasing demand from clients to align their strategies with investor values.
Private Assets as a Diversifier
While some buyers express some concerns about the use of alternative investments, buyers generally think the benefits are worth the tradeoffs, particularly in the case of private investments. Almost half (49 percent) said private assets would play a more prominent role in their portfolio strategy going forward.
«Professional fund buyers entered 2020 anticipating further market volatility and risk. The uncertain factor was what event would trigger a fall and when exactly it would occur. Investors are enduring unprecedented market conditions as a result of the Coronavirus pandemic. We are starting to see professional fund buyers return to risk with a continued focus on ESG strategies, well-valued equities, and alternative fixed income,» Matthew Shafer, Natixis head of wholesale distribution, commented.
- Download Natixis IM’s annual professional fund buyers survey «The age of anxiety: professional fund buyers seek alpha, diversification – and defense»
