Local authority funds have ramped up their interest in multi-asset strategies as they try to manage the impact of volatility on their investments, according to new investment data.
Multi-asset and global tactical asset allocation funds made up 21.4 per cent of searches in the first three months of this year, compared with just 8 per cent in the last three months of 2012, according to data collected by Financial Times service MandateWire.
“Funds focused on diversification continued their drive toward diversified growth and total return funds that blend a variety of assets to smooth volatility and limit losses, while still delivering returns,” concluded MandateWire’s Q1 Deal Flow survey.
Schemes are increasingly prepared to look for a broader range of growth assets that have similar or lower volatility than equities and which soften the impact of market losses, said Diane Miller, principal at Mercer.
“They can be thought of as a soft hedge, as they should produce positive returns in their own right and they help offset the impact of equity market downside, reducing volatility of overall returns,” she added.
Robert McElvanney, senior investment consultant at Aon Hewitt, said: “We are still seeing clients looking for assets that are going to have a high investment return, similar but maybe not as high as equities, but with a lot less volatility.”
The popularity of commodity trading advisers – managers that trade future contracts – is also seen to be driving the wider growth of global tactical strategies.
“There has been a lot of focus on how well trend [analysis] performed in 2008 and investors are looking for CTAs to perform as a partial tail-hedging instrument in a number of unwelcome scenarios,” said Pete Drewienkiewicz, head of manager research at consultancy Redington.
“At the portfolio level, we continue to believe that relatively pure trend-following strategies harvest an attractive risk premia and we certainly have been exploring this theme with clients.”
The data also showed a schism between corporate pension funds’ focus on broadening their fixed income portfolios in the first quarter of the year, and local authority funds appointing a series of managers to global equity frameworks.
Six corporate schemes increased their fixed income allocation, seven awarded such mandates and a further three schemes said they were planning to do so. Of the 38 equity awards made by local authority schemes, 21 were for global equity mandates.
