May 8, 2017
  • Eight in ten (79%) fund buyers around the globe say the current environment favours active managers
  • Top sources of volatility for 2017: geopolitical events; interest rates and china market woes. Top investment objective in 2017: delivering higher risk-adjusted returns.
  • Turning to alternatives to add alpha as well as diversify portfolio risk and add alpha

In the current investment environment marked by higher volatility and low yields, the vast majority of professional fund buyers, including discretionary portfolio managers and funds of funds, favour active management and alternative investments for alpha generation, according to a new survey by Natixis Global Asset Management that covered professional fund buyers in 28 countries across Europe, the Americas, the Middle East and Asia. The survey revealed geopolitical events (67%), interest rates (49%) and China market woes (36%) as the top three sources of volatility for 2017. The low-yield environment tops the list of risk management concerns (77%).

Professional buyers believe that higher levels of market volatility are likely to result in greater dispersion in equity returns. 95% of those surveyed said they would choose active management over passive investments for generating alpha, while active management is also the preferred route to gain exposure to non-correlated asset classes (74%) and emerging markets (77%).

Matthew Shafer, EVP of International Distribution at Natixis Global Asset Management commented: “While keeping a close eye on political and macroeconomic shifts in Europe and Asia, professional fund buyers see volatility as an opportunity. That is why they are looking to active management to both generate alpha and manage risk.”

Although professional buyers anticipate greater volatility in the year ahead and are concerned about investors taking on too much risk, they are not shying away from adopting risk, which is reflected in their market outlook and asset allocation calls.

Professional fund buyers are resetting strategy to ensure they are positioned for volatile, uncertain markets. Threequarters (74%) pointed to alternative investments as a means to diversifying portfolio risk. More than half (54%) also say it is essential to invest in alternatives in order to outperform the broad market. This correlates with MackayWilliams’ latest Fund Buyer Focus1 which showed a greater emphasis from professional fund buyers on alternative and thematic strategies.

“We are seeing a marked shift from the old passive and long only active model to a new mix based on a core of active and low volatility alternatives with the addition of liquid and illiquid alternatives,” said Shafer.

When it comes to asset allocation, the consensus view among professional buyers is that emerging market stocks will shine in 2017, with 47% projecting this as the bright spot among equity sectors. In pursuing emerging market opportunities, fund buyers are looking to Asia Ex-Japan to provide the best performance in 2017.