The challenging market conditions of the second quarter, spurred on by higher inflation and interest rates, have resulted in an increase in risk aversion among many investors.
The latest Risk Aversion Index from bfinance, released as part of the firm’s quarterly Manager Intelligence and Market Trends report, has now moved into bearish, risk-off territory.
Measured on a scale of 0 (risk seeking) to 1 (risk averse), bfinance reported that the index climbed to 0.82 in Q2, up from 0.79 in the previous quarter.
“As inflation surges and markets fall, investors have put a strong focus on defensive portfolio positions while also looking for assets that are resilient to inflation,” commented bfinance business development manager Sebastian Mays.
The average equity exposure of multi-asset managers tracked for the index fell below 32 per cent, more than three percentage points lower than the long-term average, while exposure to fixed income and other diversifiers lifted to 68 per cent.
Equities accounted for only 20 per cent of new manager searches in the year to 30 June following a decline in searches during the second quarter.
“Equity investors took an increasingly global perspective on their portfolios and revealed growing cautiousness about allocating to particular regions, such as Europe, amid ongoing market and macroeconomic volatility,” bfinance said.
“Throughout the quarter, search activity was focused on global equity across various investment and management styles. Within developed markets, we saw a short-term drop-off in demand for regional or country-specific mandates, but investor appetite for new opportunities in emerging markets remained strong.”
The firm indicated that recent market conditions had led to considerable interest in private markets, which accounted for 68 per cent of all new search activity in the year to June, representing a 13-percentage point increase on a year earlier.
Investor appetite for real estate, which made up 31 per cent of all new searches, was also said to be on the rise, alongside increased attention towards private debt for investors seeking new sources of portfolio diversification, income and inflation protection.
“Despite the turbulence in public markets, hedge funds and other liquid alternative, strategies also continued to provide investors with a significant source of portfolio diversification and returns,” bfinance added.
“These key market insights outline an increased focus amongst investors towards defensive opportunities including hedge funds, private markets and real estate as external market pressures increase and equity markets fall.”
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.
