Investors adopting factor based models in low return environment

A poll from State Street Global Advisors (SSGA), with $2trn in assets  as of 31 March, has revealed investors’ shift in strategy to bridge the performance gap.

The research, which surveyed 400 global institutional investors, suggests investors are reassessing strategic asset allocation models and turning to objective and factor based approaches to better achieve investment objectives in a low-return environment.

Despite the lower for longer return environment, respondents shared that they are looking for a 10.9% return on their long-term portfolio performance, with a mere 13% saying that, on average, their asset classes were performing above expectations.

Of those experiencing returns below their long-term expectations, 84% believe that portfolio under-performance will continue for at least another year and 16% believe it is more likely to continue for two to four years.

The research found that investors acknowledge new approaches will be required, with 97% of respondents expecting significant change in the industry’s investment approach over the next five years.

“The models of investing across the institutional landscape are evolving as institutions are beginning to question whether they can achieve objectives through traditional investment models in the current lower-for-longer return environment,” said Rick Lacaille, chief investment officer at SSGA.

“Not only does this challenge traditional, strategic asset allocation models by forcing greater consideration of risk – it also confronts investors with a need to focus from a top‐down perspective on the drivers of returns in their underlying asset class choices,” Lacaille said.

Click here to read the full report.

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