bfinance, an independently owned consultancy firm providing financial services advice to companies and institutional investors globally, has announced the results of its sixth bi-annual Pension Fund Asset Allocation Survey conducted amongst institutional investors in Europe and North America.
Largest asset owners intentions reveal a clear trend towards ‘smart beta’ thematic index solutions to manage asset price volatility and reduce risk with 37% of investors expecting to move more of their traditional passive investments to such solutions in the year ahead. Some 83% of investors on a three year view expected to have exposure to thematic indices with 33% expecting to have a weighting of over 10%. Strategies such as low volatility/minimum variance and risk weighted/risk efficient are amongst the most regarded.
bfinance also found that contrary to some gloomy shorter term expectations for the macroeconomic outlook, equities generally were most favoured by investors to generate returns to cover long term liabilities with a net 19% of investors intending to add to equity allocations in the next six months mainly from sovereign fixed income (net 26% of investors intending to reduce weightings).
A further sharp divestment (net decrease of 22%) in sovereign fixed income is expected in the next three years as the long term trend towards greater diversification by asset class remains intact. Cash weightings too are expected to decline with a net 30% of investors expected to reduce weightings. Asset classes favoured include credit (net increase of 22%), real estate (net increase of 36%), private equity (net increase of 17%), infrastructure (net increase of 36%), hedge funds (net increase of 16%) and absolute return strategies (net increase of 26%).
Olivier Cassin, Managing Director, Head of Investment Advisory Department, Public Markets at bfinance, says: “The increased focus on ‘smart beta’ solutions reflects investor appetite for the ‘core’ of their portfolios to work harder for them as they seek to reduce risk and bolster returns. In essence the debate between traditional index based solutions within core portfolios versus active management is now out of date with greater diversification of strategies not simply the preserve of active management. In combination with the well documented wider choice of alternative strategies, there is a greater appetite for institutional investors to seek advisory services as they reduce their reliance on more traditional investment approaches.”
Emmanuel Léchère, Director, Head of Market Intelligence Group at bfinance, says: “This comprehensive survey of 82 institutional investors representing nearly USD300 billion of assets provides a clear insight into future investment trends globally. The results illustrate pension funds’ growing determination to seek returns from a broader range of investment strategies, both active and index based.”