Investors are considering which way financial markets will go next, after a roaring start to the year. In the first half of 2021, the S&P500 rose by 17 per cent, and MSCI’s broad index of European equities is not far behind, boasting returns of almost 15 per cent.
Equity values have been driven by the “vacillation between euphoria and disappointment” as the coronavirus pandemic and regional vaccination programmes have taken their course. Bloomberg is now predicting that this market volatility will increase European equity commissions by 19 per cent from 2019, after five years of decline.
Strong performance of indices has also coincided with a move towards greater benchmark hugging by active managers. Research from the investment consultancy finds that only 30 per cent of active equity managers actually outperform their benchmarks, after subtracting fees.
In an exclusive interview with Institutional Asset Manager, Willis Towers Watson’s head of manager research says that active managers are taking lower levels of risk and “over-diversifying” their investments.
The search for outperformance has led the company to work with managers at product development stage, to build new investment products across a range of areas including sustainability and China.
More volatility could be on its way across financial markets. After the US central bank changed its tune with an upgrade to its inflation expectations, fund managers have been moving up their timelines for ‘lift-off’ from near-zero rates.
Nevertheless, the world’s largest asset manager BlackRock says that markets should prepare for a “more muted” response to rising inflation than in the past. “Markets are getting ahead of themselves by baking in three rate increases by the end of 2023,” writes the asset manager.
Madeleine Taylor
Editor, Institutional Asset Manager
maddy.taylor@globalfundmedia.com