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RBC Asset Management research: European wholesale investors plan to shift capital to ESG and EMs

The majority of European wholesale investors believe megatrends will shape the way they invest in the future, with a particular emphasis on shifting capital to environmental, social and governance (ESG) considerations and emerging market (EM) funds. This is according to the results of a survey of more than 500 European fund buyers, consultants and wealth managers, commissioned by RBC Asset Management.

More than nine in 10 (93%) believe megatrends will play a vital role in their fund management strategy over the next three to five years, with two thirds (66%) of European wholesale investors expecting climate change and resource scarcity to be the most investable megatrend, followed by technological advancements (63%).

In line with climate being the dominant megatrend, European wholesale investors expect the amount of capital flowing into sustainable and/or impact investments to continue to increase, with 75% of investors saying they will allocate more assets to funds with explicit ESG criteria over the next 3-5 years. On average, those same investors said they expect to allocate 20% more to ESG in the next three to five years.

Other key findings include:

  • Market growth: Nearly a third (32%) of European wholesale investors expect China to experience the biggest equity rally in the next five years, followed by North America (30%) and Western Europe (15%).
  • Fund selection: Most European wholesale investors plan to take a global approach (31%) to fund selection in the next 3-5 years, second to a home bias approach towards European equities (22%). Furthermore, three quarters (75%) of wholesale investors cite a preference for active over passive management funds.
  • Emerging markets: European investors plan a broader allocation to EM, with 83% saying they believe that these markets are poised for a growth period in the next five years. Of these investors who expect EM to outperform, 60% said they would look to capitalise on this growth. When asked which emerging markets would be the most investable in the pandemic recovery, Asia (excluding China) is ranked highest, selected by 60% of investors. Central and Eastern Europe (53%), and China (36%) are considered the second and third most investable markets respectively.
  • UK equities: There is little attraction to UK stock markets among broader European investors, with only 8% inclined to allocate capital to UK equities. For UK domestic investors there remains a strong home bias, however, with 27% of UK wholesale investors saying they would select UK funds.

 

Commenting on the research findings, Anthony Pickering, Head of Business Development, EMEA / APAC at BlueBay and RBC Asset Management said: “Despite the monumental growth we’ve seen amongst passive investment funds over the past few years, a key takeaway from this research is the appetite amongst European wholesale investors for ESG considerations and emerging markets – something that we believe will be a significant driver for a ‘golden era’ of active management. A trend that is reflected in our findings, with three quarters of European wholesale investors citing a preference for active over passive management funds.

“Despite the relatively disappointing performance of EMs in recent years, there have been some clear success stories. Active fund management will be vital in identifying the winners and avoiding the losers. Similarly, to ensure that investors’ ESG preferences are consistently being met, accessing fund managers able to take an active approach that can identify and invest in opportunities outside of benchmark weightings will be key.”

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