Italy Fund Selector Report 2021

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March 2021

ITALIAN INVESTORS TURN TO EQUITIES

Italian investors traditionally invest the bulk of their assets in bonds. But based on Evenco’s latest survey from the country, a historic change in thinking is on the way. The Italian fund selectors and portfolio managers we interviewed in early March are almost unanimous in their view that the return prospects for bonds are poor. They therefore embrace equities – and dismiss investment-grade bonds. They’re also increasingly turning to alternatives, echoing a trend observed elsewhere in Europe.

ESG CONTINUES ADVANCE

The ESG trend is undeniable also in Italy, as it is everywhere in Europe. Seven in ten investors report having an in-house ESG policy now. The same percentage of investors say they take ESG-criteria into consideration when selecting funds. The 30% who do not yet take ESG-criteria into account when selecting funds seem hard to convince, though, as the majority of them believe applying ESG-criteria restricts their investment options or capacity to diversify in many asset classes.

EQUITIES – UNANIMOUS OVERWEIGHT

Italian investors do not seem too concerned about the recent sell-off in Asian and, especially, Chinese equities. All of our survey respondents are currently overweight emerging market equities. It’s not only this asset class that’s in favour though: the majority of interviewees are overweight all other equity asset classes too, from European to Global to US equities.

Their overweight may not be born out of conviction, however. Rather, it seems more of a necessity. As one interviewee put it, “There are still limited returns to be had in equities but investing in fixed income will give you an almost guaranteed loss. Hence the strong consensus towards overweighting equities.”

BONDS – THE HUNT FOR YIELD IS ON

While the vast majority of respondents are overweight equities, the mirror side of this picture is a fixed income underweight. Some 70% are underweight international government bonds, and two in ten interviewees do not even invest (anymore). The Italians make an exception for their domestic bond market, though. Only 30% are underweight and 10% are even overweight. Perhaps the advent of former ECB-president Mario Draghi as the country’s new prime minister has inspired confidence.

Italian govies are in fact more popular than investment-grade corporate bonds. None of the respondents are overweight this category, while four in ten are underweight or not even invested. High-yield bonds and emerging market debt are the places to be in fixed income for Italy’s investors as these asset classes are the ones that still offer positive yields. Convertible bonds also have a surprisingly large following, which perhaps is a reflection of the positive equity market sentiment.

ALTERNATIVES – PRIVATE DEBT IN DEMAND

In many countries, investors allocate a growing share of their portfolios to alternatives. Italy is no exception to this trend. Private equity, private debt and infrastructure are all almost equally in demand, with (almost) none of our respondents having an underweight position in either asset class. In contrast, 30-40% of them are overweight alternatives. Real estate is somewhat less popular as the asset class is dealing with a hangover from the coronavirus crisis. Alternative UCITs funds have had their time in the sun, but disappointing performance and high costs have cost the category dear. Most interviewees have run out of patience and have given their alt UCITs funds the boot. A whopping 60% do not even bother investing in the asset class at all anymore, while the remaining 40% have a neutral allocation.

Finally, the nascent commodities rally has also played to Italians’ natural opportunism, it seems. Half of our interviewees are now overweight commodities as they expect the rally to continue. Precious metals, on the other hand, have fallen out of favour.

ETFs – SMART AND STUPID

Italian investors also invest in ESG strategies both actively and passively. Half of them invest only in actively managed funds, but another 40% say they invest in both passive and actively managed strategies. Italy’s fund selectors have developed an ever-larger ETF toolbox over the past few years. In fact, many use a mix of smart beta ETFs and plain vanilla trackers, and Italians have also discovered a relatively new kid on the block: active ETFs. 44% of interviewees report investing in such actively managed trackers.

Evenco International Research Team hugely enjoyed conducting the interviews that helped us to shape this report. We would like to thank all of those that participated.

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