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Manager Intelligence and Market Trends
bfinance’s quarterly report in January 2020: read the team’s latest insights on institutional investor activity, risk appetite, market developments and asset manager performance across all major asset classes.
IN THIS PAPER
A risk-on shift in Q4, driven by US-China trade deal developments and further monetary easing, capped off a banner year for both equities and bonds. Virtually all major equity and fixed income markets saw strong positive returns in 2019, with “safer” strategies (e.g. developed market equity, investment grade credit) outperforming “riskier” ones (e.g. emerging market equity, high yield bonds) despite the Q4 surge in risk assets.
As one would expect, it was a weaker quarter for “diversifying strategies,” especially Global Macro, CTAs and Alternative Risk Premia. Yet manager composites in all of these areas are still in positive territory for the year.
On average, equity and fixed income managers tracked by bfinance kept pace with the Q4 surge. Notable exceptions included high yield debt in the US and Europe, where defensive positioning (especially underweights in CCCs) detracted from relative returns. In emerging market equity, the average fund tracked by bfinance delivered 24.2% – nearly 6% ahead of the market – and performance was not notably correlated with style factors.
Institutional investors’ manager selection activity in 2019 favoured investment grade credit, real assets and “multi asset” strategies with a strongly diversifying flavour. Demand for emerging market equity was resurgent after a relatively quiet H2 2018. In private debt investors are increasingly savvy and selective, seeking managers that can defy the ongoing return compression and deployment challenges.
Each quarter, bfinance publishes information on investor activity, key market trends and manager performance.
Our quarterly snapshot of the key developments within equity, fixed income and alternative investments, including analysis of which asset manager groups performed well and which didn't.
With markets continuing to be heavily driven by monetary policy and geopolitical developments, further Federal Reserve stimulus and US-China trade deal developments brought predictable positive consequences for risk sentiment in Q4.
The bfinance Risk Aversion Index, which was elevated in Q3, fell beneath its ten-year average. indicating a relatively bullish sentiment across a range of market indicators (implied volatilities, gold prices, CDX etc).
Multi asset funds tracked by bfinance have been relatively aggressively positioned since June 2017, with fears of late-cycle upheaval outweighed by fears of missing out on stock market runs. This has slightly softened since the late-2018 sell-off; these funds typically hold over 35% in stocks, still above the ten-year average of 34.5%.
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