Professional fund selectors are looking to active investments as a crucial tool to manage client portfolios in the current economic environment, according to research.
A survey of some 441 selectors by Natixis Investment Managers found the majority (71%) believed markets would favour active management in 2023. Six out of ten respondents planned to increase the number of active funds on their platform this year, such as active ETFs.
Just over half (51%) predicted stockmarket volatility would only increase over the next 12 months.
Investor sentiment indicated active management was necessary “to find alpha during a recession” and that active investments would outperform passive in the year ahead.
Inflation and interest rates continued to rank as the top portfolio concerns among the selectors, with a central bank error ranking as the biggest economic risk.
Martin Herbon, head of global financial institutions at Natixis IM, said: “Professional fund selectors have genuine concerns about what 2023 will bring, as they anticipate elevated levels of inflation, rising rates, and increased market volatility.
“They see rising rates as driving a resurgence for bonds and are reallocating their client portfolios accordingly, with sustainable investing expected to see the biggest allocation increase in 2023.
“Private assets are a class growing in popularity with half of selectors surveyed planning to add to private investments offerings.
“In short, this year will be one of tactical shifts to generate income.”
Three-quarters of fund selectors believed rising interest rates would usher in a resurgence in traditional fixed income.
Some 51% said they would increase investments in government bonds while another 46% added they would increase allocations to investment grade corporates.
On the equity side, almost 60% of respondents were bullish on stocks.
Alternatives seemed to be on the rise as well, with almost six in ten respondents recommending increased allocations in this area, including retiree portfolios to help mitigate their exposures.
The most popular alternatives allocations were infrastructure (48%), private equity (43%), absolute return strategies (32%), and private debt (31%).
Natixis IM’s survey also found the majority of fund selectors expected a portfolio of 60% equities, 20% bonds, and 20% alternatives would outperform the traditional 60:40 portfolio this year.
“Market conditions are volatile so it is very important investors review their investment portfolios and work with their financial advisers to ensure they are well positioned for growth, but also are protected as much as possible from the downside,” observed Louise Watson, Natixis IM country head Australia and New Zealand.
“These risks all come at a time when the wealth management industry is facing dramatic changes, as investors seek more comprehensive financial planning services and firms work to tailor their offerings to meet the evolving needs of clients.
“As a result, selectors not only have to address the market challenges ahead, but also deliver new investment choices.”
