Fund flows: where are investors allocating in 2023?

by | Feb 1, 2023

The higher rate and lower growth era has led many investors to re-evaluate portfolio allocations. From a renewed focus on biodiversity to seeking out specific segments of fixed income, seven distribution heads reveal where they are seeing client demand in the current environment.

Nataline Terry, head of distribution UK and Ireland at T. Rowe Price

Following a brutal year for bond markets, yields have climbed to the most attractive levels since the global financial crisis, which is driving increased investor interest in the asset class. However, with continued policy tightening and deteriorating market liquidity, expectations are for ongoing fixed income turbulence. This is why many investors are currently seeking solutions able to actively move across the entire fixed income universe, as well as dynamically manage duration. Here, we are seeing strong demand for our Dynamic Global Bond strategy. As for equities, true active strategies are witnessing demand, including contrarian growth and value opportunities within emerging markets.

Rob Hall, head of UK wholesale distribution at PGIM Investments

With rates now higher, we believe bonds have naturally become more attractive and this has set the stage for a reallocation back into the market. We are already witnessing increased demand for strategies managed by PGIM Fixed Income – particularly within investment grade and high yield credit. As for equities, fundamentals are better than what stock prices currently imply. As optimism returns, investors will be looking for managers able to take advantage of secular growth trends – in areas like luxury consumer spending and auto disruption, as well as emerging themes like fintech in Latin America.

David Miles, head of institutional and wholesale UK at J. Safra Sarasin

For 2023, we anticipate a renewed interest in fixed income, in particular credit, as yields offer more compensation for risk than they have in over a decade. We also expect biodiversity will be one of the next big talking points for the industry. It is not as well understood as climate change, but we have already lost over 60% of species and studies estimate over 50% of global GDP depends directly or indirectly on natural systems. The 2019 Dasgupta Review paints a very clear picture of the connection between biodiversity and prosperity, and 2022 saw a number of fund launches aligned with this theme.

Ben Carter, head of UK wholesale at Mirabaud Asset Management

Following many UK wealth managers increasing their weightings to gilts and other sterling fixed income going into the back end of 2022, those same wealth managers are starting to speak to us about diversifying towards fixed income strategies that look at investing through a global lens. Clients expect that by investing globally and hedging back to sterling if they want to avoid currency risk in their fixed income buckets – as many of them do – they can target a similar return profile to a sterling-biased portfolio, but with less volatility.

Laurent Gorgemans, global head of investment products at Nordea Asset Management

After a challenging 2022, it is understandable if investors find it difficult to know where to turn. While equities remain the asset class most likely to deliver returns above inflation, market uncertainties persist. This is why we are increasingly seeing demand for equity solutions able to provide resiliency – such as our Global Stable Equity strategy – as steady earnings and robust balance sheets can be stabilising forces against further economic weakness. Elsewhere, the appeal of fixed income is accelerating, but investors remain risk-averse. This is driving demand for European-covered bonds, a low-risk and often overlooked segment of the market.

Harry Dickinson, managing partner at Harrington Cooper

A renewed focus on quality in 2022 should continue into 2023. In an increasingly uncertain environment, why underwrite avoidable risks such as high leverage and unproven management? The resilience of higher-quality companies is surely a safer bet. In addition, metals are key to enabling the energy transition. Growing demand fully outstrips current supply and, as we sit at the beginning of a new commodity supercycle, not just the metals themselves, but the highly undervalued equity of the miners extracting them from the earth will, along with gold, surely re-rate to the upside.

David Conway, head of international wholesale distribution at Cohen & Steers

Inflation has been and will continue to be the key concern for investors in our view. We believe a blend of real assets can be a useful tool for investors looking to defend and enhance their portfolio through three key ways: positive inflation sensitivity, diversification potential, and attractive return potential over full market cycles, with a history of attractive risk-adjusted performance. We anticipate clients will continue to allocate to vehicles that offer a blend of real assets to potentially reduce portfolio volatility and outperform during periods of inflation, especially as inflation is predicted to remain stubborn across the UK, Europe and the US.

 

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