Pan – Euro Fund Selector Report

Share:

Q1 2021

PAN-EURO – COMMON INVESTMENT PATTERNS

Fund buyers across Europe are widely different as they serve clients with very different risk profiles. However, few patterns have emerged regarding asset classes where investors see value in, or are concerned about.

Debt markets are the largest markets in the world. Thus, their performance exerts a massive influence on all asset classes. Many investors hoped that the debt market would not surpass the historical debt caused by the financial crisis in 2008, but in 2020 they have been proven wrong. Global bond yields have further declined sharply as COVID-19 has caused massive disruptions around the world. Governments worldwide have increased spending in recent months to rescue the economy and most surely will need to tap into bond markets until the situation clears up.

PAN-EURO – ZERO-INTEREST RATE TO REMAIN

European selectors believe that the volatility in the economy will continue for the duration of 2021 or, at the very least, until the vast majority of the population has been vaccinated. This is an optimistic forecast, as there does not seem to be an end to the accommodating monetary policy or a rise in interest rates. Therefore, the zero-interest rate environment – and the sanitary crisis – are both having a major impact on asset allocation and tactical asset allocation. As a result, many fund selectors are holding a significant (3-10%) cash reserve.

FIXED INCOME – SEARCH OF YIELD IN RISKIER DEBT INSTRUMENTS

Most fund selectors are taking a neutral or negative stand to fixed income. Within the asset class, they have opted for different strategies: reducing duration, allocating to riskier illiquid assets or increasing their flexibility to reallocate within the fixed income space. 63% have reduced their exposure to government bonds while allocation to riskier bonds in search of yield has increased in areas such as high yield bonds and emerging market debt. Exposure to convertible bonds has dramatically reduced, as 75% of fund selectors mentioned either having no allocation or being underweight – an asset class that has never been mainstream, due to its mixed nature and complexity. However, it is worth noting that of the 25% of fund selectors who are neutral or overweight, 50% are based in Switzerland followed by Germany, the UK and Portugal.

EQUITIES – GLOBAL AND EMERGING MARKET STILL IN FAVOUR

2020 had two bull markets and a short-lived bear market in the middle. This is not rare, but fund selectors are still concerned about the speed of this current market recovery. Investors that did not panic and held onto their long-term views were compensated handsomely. Aware that timing a style-swap is nearly impossible, most fund selectors followed a blended approach combining value and growth funds or investing directly in blended managers.

Managing money on behalf of clients to a great deal requires some understanding of client psychology, which is evident in the rise of thematic investments. While many fund selectors invest thematically and tactically, not just geographically – we interviewed few investors who confessed that their overweight in thematic investments was largely due to the fact that it provides a compelling story for clients. “The client is emotional, and he loves buying into a good story” we were told.

ETFs – THE RISE OF ETFs

The allocation to passive investments has certainly increased but – in the case of ETFs – the difference from country to country is significant. Those differences are linked to investment culture, tax regulations and views on the business model of the distributor. A couple of fund selectors admitted that they do not actively distribute ETFs because of the lower fees and commission.

25% of the selectors interviewed are not using ETFs, while 40% have less than 10% of their assets in passive investments. Many insist that they are paid to find something more effective than an ETF.

The Dutch are the largest passive investors with 40% of their total assets in the country. However, Dutch selectors point out that this will possibly be the maximum amount allocated to ETFs, following a phenomenal rise, and that the trend has come to a halt. They observe that the overriding emphasis on cost of the Dutch Authority for the Financial Markets (AFM) is one of the reasons for this advent of ETFs.

When asked if fund selectors use ETFs as part of their core strategy, or hold a satellite position, 83% admitted to using ETFs as a satellite position or tactically. Those seldom investing in ETFs, merely invest either for the short-term or hedging.

80% invest in plain vanilla solutions. Smart beta has not been popular with our interviewees. Some argue that if they are opting for a thematic mandate, they would rather pay extra for an active strategy and the portfolio manager’s stock picking abilities.

ALTERNATIVE INVESTMENTS

The alternatives space has been a beneficiary of the market disruption caused by COVID-19 and the low interest yield environment.

Most investors are overweight or neutral in alternative assets. However, this has not necessarily led to an increase in flows to external funds and third-party asset managers. On the contrary, since the credit crunch, large institutional investors have been steadily developing their internal capabilities in areas such as real estate (listed and non-listed) and private equity to increase their control on the illiquid parts of their portfolios.

In the case of Scandinavia and The Netherlands, local players have invested heavily in domestic infrastructure and real estate as a safe option with a good risk-return tradeoff.

Private equity, commodities and insurance related strategies have gained momentum as well. Although, liquidity remains a major concern for many fund selectors with exposure to alternative strategies via alternative UCITS funds.

Crypto currency has been mentioned in quite a few conversations, with most investors agreeing that the best way to gain exposure is via mutual funds.

Gold – as the ultimate safe heaven against political unrest and inflation – is most popularly invested in via ETFs and trackers, among our interviewees. The preferred way is to select a fund that invests in gold mining stocks. These companies are uncorrelated to the general equity market and can still show a profit in times of flat or even declining gold prices – a safe heaven.

ABSOLUTE RETURN – DISSAPOINTS AGAIN

Even though absolute returns were designed exactly for unprecedented and volatile times, its peer groups have widely disappointed the fund selector community. “Our absolute return managers have beaten their peers widely, but only because their competitor’s performance was even poorer. All in all our absolute return funds were not worth their salt.” said a selector who usually holds a 5% allocation in absolute return strategies.

MULTI-ASSETS – THE EUROPEAN DIVIDE

Multi-asset is another strategy that fund selectors are shying away from, in spite of having significant allocations in such mandates. Nowadays, multi assets funds are run in house as an overall strategy as most investors are reluctant to delegate their asset allocation to external managers.

There is an apparent divide between northern Europe and southern Europe. While northern European fund selectors want to hold on tightly to the reins of their allocation, their southern European colleagues are selecting external multi-asset funds regularly.

ESG – THE WAY OF THE FUTURE

ESG is another area where there is a divide between northern and southern Europe. Almost all influential investment companies in northern Europe comply with the United Nationssupported Principles for Responsible Investment (PRI). While in southern Europe fund selectors agree that ESG is the future, it is far from being mainstream. This is predominately due to client demand and, to a lesser extent, the lengthy due diligence process required to initially implement. The demand for ESG in northern Europe is driven mostly by institutional investors. Most investors agree that being ethical and socially responsible leads to positive changes in the environment and society in general. Beyond this, the definition of ESG is open to interpretation. There are two major concerns when it comes to ESG; one relates to its potential benefits and pitfalls and the second around greenwashing.

Nevertheless, most fund selectors believe that they can invest ethically in almost any asset class and enjoy the same, if not, better returns in the long term. The majority of fund selectors believe that a well-defined ESG policy helps to mitigate risk from governance scandals to environmental disasters.

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.

Register to receive your
Sample Report

By clicking “Submit” I acknowledge I have read and agree to the Privacy Policy. Evenco will not share or sell your contact details with any third party sources.

Register your interest in one of our events

By clicking “Submit” I acknowledge I have read and agree to the Privacy Policy. Evenco will not share or sell your contact details with any third party sources.

Refer a colleague

Register to receive your Contributor Brochure

By clicking “Submit” I acknowledge I have read and agree to the Privacy Policy. Evenco will not share or sell your contact details with any third party sources.

Register to receive your Membership Brochure

By clicking “Submit” I acknowledge I have read and agree to the Privacy Policy. Evenco will not share or sell your contact details with any third party sources.

Register to receive your
Event Media Pack

By clicking “Submit” I acknowledge I have read and agree to the Privacy Policy. Evenco will not share or sell your contact details with any third party sources.

Privacy Policy

The data controller is: Evenco International Limited, 1 Ropemaker Street, London, Greater London, England EC2Y 9HT.

Evenco International is an executive conference organiser for the asset management community.

Your privacy is important to us. Accordingly we are committed to handling the personal information of all those we engage with responsibly and in a way that meets the legal requirements of the countries in which we operate.

This privacy policy explains the basis on which any personal data we collect from you will be processed by us in relation to the following:

Conference registration.
Email Marketing.
Face-to-face meetings with our Research team.

Except for the above, we do not process or analyse your information in any other way, including disclosing your information with third parties, unless required to do so by law.

Conference registration

If you sign up to attend one of our conferences, we will ask you to provide your professional details – in order to determine your suitability to attend our conference and share with you all logistical information. We will use this information internally to communicate with you. We request the following: name, job title, business address, email address and business telephone number. By attending our conferences we may pass the information we collect at registration to our conference sponsors. It gives our sponsors the opportunity to know who will be attending the conference. They can contact you after the conference for commercial reasons. It is, therefore, up to you whether you remain in contact with them. Evenco International will never share any of your personal data with potential sponsors without your explicit consent. After the conference, we will ask you to complete surveys regarding your experience with us. Information for us and the sponsors of the conference to which the feedback applies. We will check, of course, that you are happy to share your feedback and personal data with the sponsors. We will not share your feedback with other third parties without your explicit consent. There will be a photographer and/or videographer at our conferences. This may be used for future marketing material, our website and social media channels.

Email Marketing

When you register to attend one of our conferences, we will ask you if you wish to receive direct marketing from us regarding future conferences. You can choose to stop receiving them at any time by emailing info@evencointernational.es

Face to face meetings

Evenco International meets with its audiences prior to its events – meaning we will sometimes ask to meet you and ask you questions. We do not record these meetings. Any opinions that you express may be shared with specific sponsors – anonymously – on the condition that you give us your permission to do this.

Security

We ensure information once received is stored securely and only accessible with the correct authorisation. Electronic data and databases are stored on secure computer systems and we control who has access to information. However, a loss of personal data is known as a data breach. The General Data Protection Regulation imposes requirements on businesses to report breaches within 72 hours. We undertake to inform you if your personal data is compromised and there is a risk to your rights and freedoms as a result.

Contact Us

If you have any questions about this Privacy Policy or relating to our use of your information, write to our Data Protection Officer at Evenco International, 1 Ropemaker Street, London, Greater London, England EC2Y 9HT, or emailing info@evencointernational.es

Please also contact us if you wish to exercise your ‘Right to Access’ or ‘Right to be Forgotten’ under the General Data Protection Regulation.

Terms and Conditions

Evenco Analytics offers a free trial period for three months after subscribing to the service. You will not be charged for this product during your trial period. Before the trial expires, we will contact you to see if you wish to continue using the service and subscribe to a yearly subscription, where you can cancel if desired. You can also unsubscribe from Evenco Analytics for free at any time leading up to the first quarterly payment by contacting us at info@evencointernational.com. Standard rate for the product is £5k per annum, charged quarterly at £1250. Early bird and referral discounts are also available for subscribing to a full Evenco Analytics subscription – please contact us for more information. As our subscription is set up via invoicing, please note that there may be a short delay before you receive access to the platform, as we will need to approve your request.

Request a demo