bfinance, a global investment consulting firm, has issued its latest quarterly Manager Intelligence and Market Trends report, for Q2 2022, providing insights into how investors are adjusting their portfolios due to difficult market conditions driven by rising inflation and increasing interest rates.
During the period investors were closely focused on protecting their portfolios and seeking out sources of potential return despite the ongoing volatility during the quarter, as both bond and equity markets plummeted.
Business Development Manager at bfinance, Sebastian Mays, based in Sydney, said that investors have prioritised inflation-resilient assets.
“As inflation surges and markets fall, investors have put a strong focus on defensive portfolio positions while also looking for assets that are resilient to inflation,” Mr Mays said.
The bfinance Risk Aversion Index moved deeper into bearish, risk-off territory, rising to 0.82 from 0.79 during Q2. The bfinance risk aversion index is a proprietary measure used to calculate how risk seeking (nearer zero) or risk averse (nearer 1) the market consensus is.
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Among the multi-asset managers tracked for the index, equity exposure dropped to less than 32% (three percentage points below the long-term average), and exposure to fixed income and other diversifiers rose to 68%.
Equity searches fell in Q2 as investors grappled with ongoing market volatility, encouraging them to take a global view and consider defensive style strategies, such as quality. It came as investors sought out growth, value and benchmark-aware opportunities.
The current market conditions have driven considerable interest in private markets, which represented 68% of all new search activity for the 12 months to 30 June 2022, up 13 percentage points year over year. Investors also demonstrated a keen appetite for real estate, which attracted 31% of all new searches, and private debt, which also drew attention as investors sought out new sources of portfolio diversification, income and inflation protection.
Despite the turbulence in public markets, hedge funds and other liquid alternative strategies also continued to provide investors with a significant source of portfolio diversification and returns. Interest in real estate and private debt surged as investors looked to prioritise inflation-resilient assets.
These key market insights outline an increased focus amongst investors towards defensive opportunities including hedge funds, private markets and real estate as external market pressures increase and equity markets fall.
