Some 63% of global fund selectors anticipate that value will outperform growth in 2021, while over one third plan to reduce their exposure to US equities, according to research from Natixis Investment Managers.
In its annual global survey of fund selectors, conducted at the end of last year, Natixis found that while fund buyers anticipate heightened risk in 2021, they are positioning their portfolios to capture the potential upside this will create.
With more fiscal and monetary stimulus likely to come from policymakers, 61% predicted small caps will outperform large caps, while 60% expect emerging markets to outperform developed markets.
Given these predictions, and set against a backdrop of continued market volatility, some 65% of the 400 fund selectors surveyed stated emerging markets are more attractive today than pre-covid-19 and 52% said they will be increasing their weighting to the region this year.
Additionally, given predictions for greater volatility and projections for value to outperform growth, some 83% believe markets will favour active investments in 2021.
Close analysis required
Commenting on the findings, Matt Shafer, executive vice president, head of wholesale and retail distribution at Natixis, said: “2020 marked a year of extreme challenges for markets that went beyond the health pandemic, including climate events and natural disasters, political tensions and the fastest market correction in history. Uncertainty continues and concerns are mounting that financial markets may have entered bubble territory.
“However, fund selectors surveyed view market risk as an opportunity, while acknowledging close analysis is required to uncover the opportunities to generate alpha for clients.”
The survey also revealed a growing concern among professional fund sectors that retail investors are taking on careless amounts of risk post the pandemic.
Some 78% of selectors said increased volatility in 2021 will cause individual investors to liquidate their investments prematurely.
Given the focus on riskier, more volatile assets and concerns about potential liquidations, more than half (54%) of the 295 professional buyers whose firms offer clients model portfolios anticipate they will move more clients to model portfolios this year.
Turning to ESG, after a strong year in 2020, 57% of respondents believe the outperformance of ESG strategies will continue this year.
As a result, more than half of fund buyers said they intend to add to their model portfolios offering in 2021 and enhance their lineup with speciality strategies for both ESG and thematic investing.
Primed for rapid change
Justin Onuekwusi, fund manager and head of retail multi-asset funds at LGIM, said he too is currently positive on the outlook for risk assets and expects fund flows to continue into areas such as ESG and equity markets.
“Given that we are coming out of a deep recession, there has been significant significant fiscal and monetary stimulus and both the US and UK economies look like they are going to have a vaccine led recovery, it is difficult not to have a risk-on view,” he said.
“However, as a multi asset investor, I do worry when a lot of the market has a very similar view to us,” he added. “I would also add that the fund selector market is heterogeneous and small bits of news can change these opinions quite rapidly.”