French model portfolios made best returns in 2015

Natixis GAM’s annual global portfolio barometer has found out that French investors made average returns of 7.6% in ‘moderate’ risk rated portfolios evaluated in the study.

The firm’s in-house portfolio research and consulting group has reviewed 855 model risk-rated portfolios throughout the whole of 2015.

“These portfolios were based in seven different locations worldwide: Singapore (13 portfolios reviewed), France (46), Italy (25), Spain (45), Latin America (12), the UK (266) and the USA (448),” Natixis specified.

According to the research, the French asset allocation stands out of the crowd.

“Investors in France benefit from being able to invest in a high interest paying cash-like product called Fonds En Euros that sets a “risk free” benchmark for all other asset classes to beat.

“As a result, in these low interest times, this makes up a significant portion of a French investors’ “risk reducing” allocation. They, along with LatAm and Italian investors, also favour utilising allocation or “patrimonial” funds in significant size.

“These funds, which include a combination of asset classes, have characteristics similar to the overall moderate portfolios themselves, and do not always offer the diversification benefits expected. They form nearly one third of French portfolios, a far greater proportion than elsewhere,” Natixis reported.

Other findings of the study show UK investors holding moderate portfolios have had average returns of 5.3% average returns in 2015 whereas US (-0.9%) and Latin American balanced portfolios have faced the lowest average returns.

Italian and Spanish investors with moderate portfolios have had respectively 5.2% and 2% returns on average.

Natixis said their returns “were stifled by poor performance across the markets, including equities, US Government bonds and corporate credit.”

Also Natixis stressed that in the fixed income universe, France and Italy “noticeably outperformed” while the UK and Latin America “noticeably underperformed”.

“There are several reasons for this. First, Italy and France had high allocations to European fixed income managers, which performed well for them, and particularly so in France where manager selection played a big role.

“Investors in those markets also hedged less of their fixed income currency exposures than other regions, which benefitted them as the dollar rose by 11% against the euro. This means that European investors investing in dollars assets saw an additional 11% return compared to their US and Latin American/LatAm counterparts.

“Latin American investors suffered from high allocations to US and emerging market fixed income, which performed poorly. In the UK, global and European/Sterling fixed income managers (the lion’s share of allocations) underperformed,” the research suggests.

James Beaumont, international head of Portfolio Research & Consulting Group at Natixis Global Asset Management, commented: “This research shows just how differently asset allocation is handled across the world, highlighting the importance of considering risk first, before return, in portfolio construction and reconsidering the traditional 60/40 equities/bonds approach to the balanced portfolio.”

“French investors in our study were the clear winners in 2015, benefiting from high exposure to European equity markets, which performed well, and strong manager selection in fixed income. Latin American investors lost out due to poorly performing local markets and high exposures to underperforming US markets,” Beaumont added.

Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

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