The past year saw a significant shift in new equity mandates as investors and pension funds have highly prioritised emerging market and Asia-focused managers at the expense of US equities, according to bfinance.
Figures from the financial services firm showed that 28 per cent of all new equity manager selection projects over the past 12 months were for emerging markets, which represented an increase of over 100 per cent on the previous year.
Additionally, Asia proved to be the most popular regional choice, with not just the emerging economies but Japan equity and broad Asia equity proving attractive.
By comparison, last year global equity mandates accounted for almost 40 per cent of the total number of new equity mandates while they currently comprised only 24 per cent, the study showed.
The other key finding was the rise in environmental, social and governance (ESG) as a criterion among investors which became increasingly important beyond developed markets.
The company said that at the same time it found that new smart beta mandates were in decline.
The 2017 bfinance manager analysis’ preliminary finding also suggested a positive relationship between managers’ governance scores and investment performance in emerging markets.
However, one of the challenges for investors, seeking to integrate ESG considerations in emerging market equities, was lack of data.
“Where scores were available, they are often based on less information and restricted to benchmark stocks, while EM managers tend to invest a significant proportion off-benchmark,” the company said.
bfinance senior director and head of equity, Justin Preston, said: “The shift in new equity manager selection patterns among bfinance clients has really been very significant, particularly the move towards emerging markets, Asia and Japan”.
“The past few years have seen fundamental changes in the way that active equity managers are viewed and analysed by investors, and by consultants such as ourselves.
“Hopefully this piece challenges some of what now seems to be conventional wisdom and encourages investors to ask tough questions, avoid simplistic assumptions, interrogate the data.”
