- Rising rates and rising volatility add up to a market that favors active management for 80% of respondents.
- Managing duration and incorporating alternatives are key components of rising rate strategies.
- Seven in ten find it essential to invest in alternatives to help diversify portfolio risk.
Professional investors express a market view that feels more like 2007 than 2017 and what looks to be a return to the old normal.”
Meet the new normal, same as the old normal
Volatility is back. While the ups and downs of early 2018 may have caught some investors off guard, professional fund buyers have been expecting a volatility spike for some time. Our recent survey of fund buyers reveals a market view that feels more like 2007 – and looks like a return to the old normal. Learn how they’re reassessing the assumptions that served them so well in post-crisis markets.
Professional fund buyers have had their eye on volatility for some time
Over three-quarters (78%) of professional fund buyers are surprised that market volatility has remained so low for so long, and 60% say the absence of volatility is cause for serious investor concern.
Today’s top 3 portfolio risk concerns for professional fund buyers
Buyers foresee risks, but are split on what it will mean for portfolio performance. Most see rate increases as a negative for overall performance (49%), but three in ten see a change in rates as a potential performance boost. The split in opinion may be driven by their investment horizon.
Top portfolio risk concerns:
- 55% rising interest rates
- 47% volatility spikes
- 36% liquidity
How are professional fund buyers responding to today’s market?
Despite these risks, professional fund buyers report an average return target of 8.4%. 82% of those surveyed say this goal is realistically achievable. But buyers know that their investment strategy needs to evolve to help better position portfolios for new market realities. They say that they’ll:
- Shorten duration on bonds
- Use alternatives to generate income
- Favor European and emerging market stocks
Active management is critical
The fund buyers surveyed anticipate volatile markets, and 80% of respondents favor active management to counter rising rates and market volatility. In fact, 84% say active management offers better downside protection than passive. And two-thirds see active management as the better choice for taking advantage of short-term market movements.
Alternatives: More important than ever
Seven in ten professional fund buyers say it’s essential to use alternative investments to help diversify portfolio risk. They’re likely to look for alpha with private equity–and seek to manage volatility with hedged equity and managed futures.
Low yields have made it challenging to generate a stable income stream. As a result, 59% report their organization is increasingly using alternatives as a fixed income replacement.
- More than half (52%) look to real estate for its ability to generate income.
- Four in ten believe infrastructure can help address their income objectives.
- 35% see private debt as an effective vehicle.
Professional fund buyers are responsible for researching and selecting the funds included on private bank, insurance, fund of funds, and other retail investing platforms. The Natixis Investment Managers Global Survey of Professional Fund Buyers was conducted by CoreData Research in September and October 2017. The survey included 200 respondents in 23 countries.
This material is provided for informational purposes only and should not be construed as investment advice.
All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Diversification does not guarantee a profit or protect against a loss.
Alternative investments involve unique risks that may be different from those associated with traditional investments, including illiquidity and the potential for amplified losses or gains. Investors should fully understand the risks associated with any investment prior to investing.
Natixis Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.