Fund selectors recommend tactical rotations to more economically sensitive and value-oriented sectors. Their key calls emphasize conviction in the reopening trade and favor financials, energy, health care, consumer discretionary and information technology.
Survey participants were about evenly divided on whether growth is more likely to come from developed markets or emerging markets. However, 74% agreed that emerging market investments are overly dependent on China, and 86% maintain that regulatory uncertainties in China make the country a less attractive investment opportunity.
Fund selectors remain committed to the important role fixed income plays in client portfolios, though 88% agreed it will be important to counter duration risk as rates begin to normalize.
With rates still historically low, 72% of fund selectors said they are increasingly recommending alternative strategies as a way to generate yield.
Search for Risk-managed Growth
The survey found that fund selectors are intent on enhancing their product offering as they strive to balance a changing investment landscape with the evolving needs and interests of clients.
At the core of this offering are model portfolios with a mix of actively and passively managed funds aligned with clients’ preferences and risk profiles.
On average, three-quarters of the models on their platforms are proprietary ones built and managed in-house; 40% of fund selectors, however, said they intend to add more third-party models this year, and 49% plan to increase the number of actively managed funds offered.
“Given concerns about increased volatility, fund selectors are clearly telling us that model portfolios are likely to take a prominent place in plans for 2022 as they look to present an integrated, risk-based solution that can help investors navigate a riskier market environment,” Dave Goodsell, executive director of Natixis IM’s Center for Investor Insight, said in the statement.
“At the same time, many are looking to complement their core model offering with non-correlated investments and other specialized strategies.”
Over the next two years, fund selectors said they plan to add model portfolios. Eighty-four percent currently offer them, and 57% of those report a growing need for specialty models to complement their core portfolios.
The top strategies they plan to add include models focused on tax management; alternatives; environmental, social and governance factors; and income generation.
Fifty-eight percent of fund selectors are adding more ESG-focused investment options. Fifty-five percent said consideration of ESG factors is an integral part of sound investing, and the same percentage agreed that there is alpha to be found in ESG investments.
Over the next two years, 52% of fund selectors plan to add more private investment investments, where 74% said there is a significant delta in returns from the public markets.
They see the most attractive areas for private equity investments as infrastructure, information technology, health care and real estate.
The Cryptocurrency Conundrum
Forty percent of fund selectors reported that more clients are demanding cryptocurrency solutions, with 42% citing pressure to add cryptocurrencies specifically to appeal to younger investors.
Of the 45% of respondents offering digital currencies, 39% said they intend to further expand their offering. For now, however, 67% said they do not think individual investors should have exposure to cryptocurrency.
Eighty-six percent maintained that these assets need to be more transparent, and 84% said they will need some type of regulatory oversight. Moreover, 71% said their firm needs more education in digital assets and cryptocurrencies before investing in them.