In response to the challenging geopolitical and macroeconomic environment of the first quarter, investors globally have sought to improve the resistance of their portfolios.
The latest quarterly Manager Intelligence and Market Trends report from bfinance indicated that investors largely pursued diversifying and defensive strategies during the quarter.
This included reducing exposure to Eastern Europe and divesting entirely from Russia when possible, as well as a surge in new manager searches for emerging market equity.
“Investors who expected the post-pandemic economic recovery to continue unabated had to recalibrate their expectations as growth slowed and markets turned volatile,” bfinance said.
“Evidence of that adjustment was reflected in the bfinance Risk Aversion Index, which moved sharply into risk-off territory, rising from 0.50 (modestly risk averse) to 0.79 (markedly risk averse) in Q1.”
bfinance reported that public equities represented 25 per cent of all manager searches during the period, up from 21 per cent in the previous year.
The firm said that investor appetite for emerging market equity was particularly strong with a 33 per cent increase in the number of manager searches in the year to March.
Global emerging markets accounted for 35 per cent of new manager searches within equities, up from 11 per cent a year earlier, while global equity accounted for 42 per cent of searches, down from 70 per cent.
Meanwhile, private markets accounted for 46 per cent of new search activity during the year, a slight fall from 50 per cent a year ago.
“Private Markets continued to attract interest as investors sought alternatives to more traditional equity and fixed income allocations,” bfinance said.
Within the asset class, real estate accounted for 26 per cent of new searches compared to 15 per cent in the previous year, while private debt, including trade finance and leasing strategies, held the largest share of searches at 34 per cent.
For fixed income, bfinance said that investors had shifted towards assets with floating rates, such as leveraged loans, for better inflation protection along with higher-yielding assets such as emerging market debt and high-yield bonds.
“Even as the prevailing market environment proved challenging, hedge funds and other liquid alternative strategies continued to perform well,” said bfinance.
“In Q1, we observed a tactical recalibration as many companies shifted their attention away from direct investment initiatives towards multi-asset and overlay projects while still maintaining the same objectives: diversifying portfolio returns and controlling traditional risk exposures.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
