Following on from last issue’s examination of emerging market manager allocations, it seemed appropriate to see how mixed asset managers are shifting their asset class weightings. Love them or loathe them, even the most cynical investors would struggle to argue that mixed asset managers don’t frequently possess great ideas and stoical long-term views.
Using Lipper’s monthly global asset allocation poll of 48 leading asset managers and chief investment officers in the US, Europe and Japan, we can see what tactical changes allocators are making.
One thing that is immediately apparent is that over the short term, investors have been selling down equities just as they break through fresh highs. These have been sold to increase their allocations to debt.
This is a trend that stretches back a number of years. In July 2014, equity allocations topped out at 52.5%. Bonds were at 35.2%, by contrast with the 40.3% allocation to fixed income at the end of February.
There are a few observations to make from this. First, in the near term, mixed asset investors do not appear to have been swayed by Federal Reserve chair Janet Yellen’s comments indicating a more aggressive period of rate rises.
Second, and perhaps more telling, is that this continual selling down of equity markets is the source of much of the underperformance of mixed asset managers. Three-year risk-adjusted numbers for managers in Lipper’s Global Balanced USD sector do not make for pretty reading, with just 50 of 203 (25%) scoring a positive ratio.
Equities are unsafe ground
However, this asset rotation is actually reflected in what investors have been buying in the active fund managers we track. The top two sectors globally since the end of September are Floating Rate Notes and Global High Yield. The former is ahead by some margin, taking in $21.7 billion of new money to the end of February.
It would seem that inflation is the main concern for investors and not interest rate expectations. The traditional outlet for an inflationary period would be to buy equities, yet with major stock markets around the world at all-time highs, this could be viewed as unsafe ground.
As for high yield, 2016’s astonishing run continues with the sector up 5% in the first two months of 2017 and showing no signs of abating. However, with Pimco’s Daniel Ivascyn (see Manager Profile on page 20) starting to sell down his position in the sector, perhaps others should take note.
Where multi-asset managers are allocating their money
45.5% - Equities
40.3% - Bonds
6.6% - Alternatives
5.3% - Cash