Investors preparing for a market shift

A survey of 500 institutional investors has found that the overwhelming majority (78%) expect to see higher volatility in 2018.

The research, carried out by specialist financial services research firm CoreData for asset manager Natixis Investment Managers, found that investors are using alternative assets for several purposes, and they expect ESG strategies to play a greater role in their portfolios. On alternatives, 70% of investors said they were needed to diversify portfolio risk, while over half – 57% – said that alternatives are needed to outperform the broader market. Investors also named infrastructure and private debt as suitable ways to replace fixed income, while managed futures and hedged equity strategies were seen as ways to manage volatility. For alpha generation, investors cited private equity as their top choice, while commodities and real estate were seen as best for inflation hedging.

The research also found that 76% of investors believe that the current environment favours active strategies, while 57% expect active to outperform passive over the longer term, despite three-quarters saying that alpha is becoming harder to find as markets become more efficient. On ESG, 60% of investors said that they now integrate it into their investment approach. ESG investing is also seen as beneficial for investors, with 59% saying it can produce alpha and 56% saying it mitigates risks. The primary drivers of ESG were given as aligning investment strategies with organisational values and minimising headline risk.