Well what do you know. The latest research from Greenwich Associates has found that risk appetite has returned among retail clients of European investment funds — particularly for corporate bonds.
Greenwich surveyed nearly 200 intermediary distributors of investment funds in Europe and found that their retail clients are looking to boost returns with new investments in “high risk” equity products and fixed-income credit products. Interestingly, hedge funds are “conspicuously absent” from this resurgent demand among retail clients, but remain strongly in favor among institutional investors.
More than one-third of the top 196 intermediary distributors polled by Greenwich for its annual survey on intermediary distribution said they expected to see significant asset growth in products such as emerging market equities, Asian equities and international equities in the coming year. Only 2-3 per cent of distributors predicted significant declines in these products.
Distributors of investment funds are indicating that, “after a period of extreme risk aversion, their retail clients are looking to take advantage of what they see as a market bottom”, Greenwich said.
On the fixed-income side, 31 per cent of fund distributors expected significant asset growth in corporate bonds in the coming 12 months (with only 6 per cent predicting significant declines) and 24 per cent expected comparable growth in emerging market debt (with 4 per cent expecting significant declines in assets).
The same trends appear in distributors’ expectations for specialist funds. Thirty-one percent of European distributors expect to see a significant increase in assets invested in commodities funds, more than a quarter (26 per cent) expect an increase in infrastructure funds and 22-23 per cent expect significant increases in assets invested in agriculture, sustainable/“SRI,” or ecological/green funds.
Even if these growth rates materialise, absolute levels of investments in these funds will remain modest relative to larger equity and fixed-income products, according to Greenwich.
At the same time, a large share of the European intermediary distributors surveyed said they expected to see significant asset declines in more conservative investment products. Almost a third (32 per cent) predicted significant asset declines in money market funds and 27 per cent predicted significant reductions in government bonds.
On the demand outlook for alternative asset classes and balanced funds, the distributors were divided. For example, while 23 per cent predicted significant asset gains for “new style” balanced (ie, multi-asset funds), 19 per cent predicted significant declines, while there was a similar split in expectations for traditional balanced funds, which typically offer fairly stable proportions of stocks and bonds.
Balanced funds are most popular among French distributors, about a quarter of which expect to see significant asset growth in both traditional and new style balanced funds, added Greenwich.
Distributors are also divided in their outlook on alternative investments, including hedge funds, private equity and real estate, both REITs and direct investments. Despite the mixed signals, Greenwich noted a “clear shift in investor attitude toward hedge funds”:
In 2008, 27% of European third-party fund distributors predicted significant asset growth in hedge funds for the coming year; 12 months later, only 11% predict such growth and 15% expect to see significant asset declines. This differs from institutional investors who expect hedge fund investments to continue to grow.