Investors retreat into defensive assets

Rising bearishness among investors has led to a retreat into defensive assets, according to the latest quarterly manager and intelligence trends report from Bfinance.

Against a backdrop of surging inflation and rapidly rising interest rates, the report noted that investors were challenged to rethink their vulnerability to equity market volatility.

A fallback into defensive assets was reflected by the Bfinance Risk Aversion Index, which moved deeper into bearish, risk-off territory, rising from 0.79 to 0.82 in the second quarter of the year.

Among the multi-asset managers tracked for the index, equity exposure fell to less than 32% (3 percentage points below the long-term average), while weightings to fixed income and other diversifiers rose to 68%.

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According to August’s report, as investors sought out new sources of portfolio diversification, income and inflation protection and real estate attracted 31% of all new mandate searches, while private markets represented 68% of all new search activity for the 12 months ended 30 June 2022.

Equity mandate searches fell in the second quarter, accounting for just 20% of all new search activity over this period. Fixed income searches remained unchanged year over year at 15% of all new activity.

Despite the turbulence in public markets, the report noted that hedge funds and other liquid alternative strategies continued to provide investors with a “significant source” of diversification and returns.

While overall search activity for so-called diversifying strategies remained virtually flat at 11%, Bfinance noted a rising percentage of overlay strategies being implemented by its clients during the period, which resulted in this segment outstripping all others on a ‘proportion of assets’ basis.