Volatility has fund buyers changing investment strategies: survey

Professional fund buyers are concerned about the rise in volatility this year but divided on how it will impact their portfolios, says a global survey.

Natixis Investment Managers surveyed 200 professional fund buyers, who are researchers and analysts handling the buying process and fund selection for private bank, insurance, fund of funds, and other retail platforms.

Almost half of those polled (47%) said asset price volatility spikes are one of their top concerns for 2018. Thirty-nine percent of respondents see a rise in volatility as a threat to their portfolios, while 38% expect a positive effect.

Along with volatility spikes, respondents say rising rates and liquidity pose the greatest risks to portfolios.

Despite these risks, the majority of those polled (82%) expect to achieve an average return target of 8.4% in 2018. Their most popular strategies to manage risk include:

• diversifying by sector,
• risk budgeting and
• increasing the use of alternative investments.

Read: Why volatility shouldn’t scare investors—and what should

Respondents also plan on changing their investment strategies by shortening the duration on bonds and favouring European and emerging market stocks.

The majority of the professional fund buyers (80%) prefer actively managed funds to counter rising interest rates and market volatility. Active management offers better downside protection than passive, said 84% of respondents. Two-thirds of those polled think active management is the better choice for taking advantage of short-term market movements.

“Overall, the majority of fund buyers responded that active management provides greater value in meeting critical portfolio objectives, and that they anticipate minimal changes in their allocations to active investments over the next three years,” said Abe Goenka, CEO at Natixis Investment Managers Canada.

Fund buyers find it challenging to generate a stable income stream with low yields. Fifty-eight percent of respondents said their organizations are increasingly replacing fixed income investments with alternatives, with real estate (52%) as the clear favourite.

Other alternative investments being used to generate alpha include infrastructure, private debt and private equity.

Read the full report here.

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