February’s spike in volatility caused nearly half (42.1 per cent) of investors to adjust their equity market outlook, according to the results of a survey published today by BarclayHedge and Markov Processes International (MPI).
The BarclayHedge, MPI Volatility Angst Survey collected responses from 164 investment professionals about their thoughts on equity markets, economic growth, and the use of managed futures to fend off stock market downturns.
In addition to concerns over increased volatility in the market – which saw its largest-ever one-day spike in the VIX indicator on 5 February, 2018 – respondents listed rising rates (30.7 per cent) and growing geopolitical concerns (21 per cent), including the threat of trade war, as their top concerns over the next 12 months.
When asked how they would adjust portfolios to respond to sustained volatility in the market, more than half of respondents chose diversification, either by asset classes or strategies (28.6 per cent) or allocations to alternatives (23.2 per cent). Another 23.2 per cent said they would increase cash exposure, while just 8 per cent explicitly indicated they would increase exposure to active managers.
The report’s authors comments that historically, professional investors have used managed futures trading to profit from plunges in the equities markets. That did not happen this year: managed futures traders lost money like many others did in the February swoon. Nevertheless, 60 per cent of respondents supported the use of managed futures to diversify their investments amid market downturns.
“Managed futures investments are among the best to take advantage of market volatility because they allow traders to profit from complex bets against market trends,” says Sol Waksman (pictured), founder and president of BarclayHedge. “The failure of managed futures funds to exploit February’s market gyrations is disappointing, but it remains to be seen if that was just a blip or a warning sign of deeper problems.”
The survey also queried investors for their views on a perpetual point of contention: high hedge fund fees. Despite downward pressure on fees in recent years, only a quarter of respondents (25.7 per cent) were satisfied with current fees. The vast majority of respondents (74.3 per cent) said fees are still high or that they wanted to see them come down further.
“There is no question that market volatility, rising rates, and growing geopolitical concerns have investors concerned and seeking portfolio diversification,” says Rohtas Handa, EVP, Head of Institutional Solutions at MPI. “But years of downward pressure on fees and the rapid growth of passive investing has conditioned the market to look for a lower cost means of equity market diversification. The goal of the work we are doing with BarclayHedge is to deliver on that growing market need.”