The latest report by Natixis Investment Managers, which surveyed 200 professional fund buyers across 23 countries, indicated the new market environment was being shaped by a number of factors.
It will be “marked by rising interest rates, increased market volatility and growing return dispersions,” the report said.
Indeed, the report suggested the ‘new normal’ seems to resemble an environment close to that of a decade ago.
“Professional investors express a market view that feels more like 2007 than 2017 and what looks to be a return to the old normal.”
Volatility in particular has been identified as a top risk concern for fund buyers over the last two years and has already spiked more noticeably this year than in the year prior.
However, fund buyers were split down the middle about whether volatility would prove to be good for portfolio performance.
“Thirty-nine per cent see it as a threat to performance, while 38 per cent see it as a plus,” the report said.
“The downside opinion is likely built on the view that after a long period of steady growth, we are due for a correction that brings security prices back down to earth.
“The upside of the view on volatility may be the prospect for higher return dispersions and a better opportunity to generate alpha.”
Whether or not fund buyers felt volatility would enhance returns, most were in agreement that it created an environment that favoured active management.
“The professionals surveyed anticipate volatile markets and 84 per cent say active is better for providing downside protection than passive, while two-thirds see active as the better choice for taking advantage of short-term market movements.”
Although passive strategies had the benefit of cost-efficiency in low management fees, active strategies were assessed as better at meeting portfolio objectives, according to the report.
“The professionals look to emerging markets to generate returns, and 83 per cent find active is better suited for accessing these opportunities.
“The professionals rely on alternative investments to help diversify portfolio risks, and three-quarters say active is better for accessing noncorrelated asset classes.”
