Fund managers are already encouraging 'risk-on' attitudes after markets plunged in August, but allocators argue 'not so fast'.
Eric Siegloff, global head of strategy and tactical asset allocation at ING Investment Management, says his team overseeing €20bn client assets in Europe will not move
to a more aggressive risky asset stance until there is more convincing evidence and “credible announcement and commitment” to structural reform.
“Monetary policy remains generally stimulatory in key developed economies. However, a lot of fiscal policy bullets have been spent and there is great pressure to reduce deficits and debt. We are quite cautious regarding the outlook over the next 18 months.
“The developed world will need to undergo significant structural overhaul over the next five years at least.”
European sovereign stress, US debt and fiscal policy, and falls in global economic growth are three macro concerns Siegloff cites. “While we have seen further
liquidity support from policymakers, there is a need for medium- to longterm policy-setting aimed at alleviating these structural concerns. As things stand currently, we think it appropriate to be positioned for downside risks.”
The multi-asset portfolios Siegloff oversees are underweight risk assets (equities, real estate and commodities) and overweight fixed income, specifically
AAA-rated Treasuries. His regional equity positioning sees Japan and emerging markets preferred over US and especially Europe. Within fixed income, his team prefers top-rated Treasuries, and within spread products is biased in favour of EM debt.
Markets must calm before Bernd Poegel, DekaBank’s head of fund research, will consider any repositioning of multi-fund products at the bank. He said: “We refrain right now from buying in the current frenzy. We want to experience a few days with sinking volatility. After that, we can actually start to assess all the fundamental data to get a clearer picture about the chances that markets come back to focus on the still positive fundamental data.”
In Britain, UK head of investment strategy at HSBC Private Bank Willem Sels, says: “Risk appetite may remain fragile for some time and markets assess the extent of the global economic slowdown. While we stick to quality, and quality assets have become cheaper, we believe it is still too early to add to our exposure.”
Coombs is “holding onto risk-off bets – inflation-linked instruments, gold, floating rate notes, the US dollar – and when adding to equities, reducing higher beta alternatives and higher beta bond positions.”
The question of taking, or avoiding, risk is not the only point where more bullish asset managers and more risk averse allocators differ.
Managers seem most keen to tout their asset class as cheap, and with growth potential – possibly with good reason. But since the 2008 crisis, and certainly since this recent one, allocators are focusing more on how uncorrelated investment strategies are, what different types of alpha managers offer, and skills in asymmetrical trades and fund liquidity, at least as much as they do on asset valuations.