Displaying items by tag: allocation

BNP Paribas conducted its annual alternative investment survey which revealed some interesting insights. There were 238 respondents, collectively representing $1.2 trillion in hedge fund assets, who were surveyed in December 2023 and January 2024. 

Many allocators are expecting a regime change with more opportunities for alpha and beta with US equities underperforming. This type of environment is more amenable to hedge fund performance. 

In contrast, hedge funds struggled in 2023 with an average return of 7.6%, while the S&P 500 was up 24%. It was the inverse of 2022 when hedge funds outperformed while both fixed income and equities were down double-digits. Interestingly, hedge funds outperformed global equity markets by 5.7% over the full 2 years. 

Going forward, allocators seem bullish on hedge funds. History indicates the asset class outperforms during periods of ‘high, stable rates. Over the last 2 years, allocators increased their expected return from 7.5% to 9.1%, which is the highest over the last decade. 

In 2023, there was a $100 billion in net outflows due to rebalancing flows, underperformance, and competition from risk-free returns at 5%. This year, survey respondents are expected to add $17 billion on a net basis. 

Finsum: BNP Paribas conducted a survey of asset allocators. They are increasing allocations to hedge funds as the asset class has historically outperformed in high, stable rate environments.

Active ETFs represent a fraction of the overall market of investable assets, but the future looks very promising given current growth rates. This is evident through the bevy of new active ETF launches which will continue in 2024. Last year, 75% of ETF launches were active. Additionally, according to Cerulli, 95% of ETF issuers have existing plans or are planning to launch active ETFs in the coming year. 

Some of these active ETFs will be conversions of active mutual funds, while others will follow a dual-class structure. In terms of why active ETFs are gaining traction, the biggest factor is the tax benefits of the ETF structure. In contrast, many investors in active mutual funds may find themselves with a tax bill if the fund takes profits on winning positions.

Additionally, the fee structure of ETFs is much simpler while it also leads to more transparency for investors. This appeals to many investors who are then able to hedge risk more effectively.  Currently, most of the focus on issuers is for transparent, active ETFs with 59% of launches falling in this category. One caveat is that active ETFs have failed to penetrate the institutional market as 80% of assets currently come from retail investors.

Finsum: Active ETFs had a strong year in 2023 and even more launches are planned for 2024. Here are the major factors driving the category’s growth. 

The old balancing act. You know; the one where retirees seek a balance between gaining a foothold on sufficient income and hanging on to wealth.

Oh yeah. That one. Look out below, because it can be precarious, according to thestreet.com.

Well, consider this tactic: an allocation to cash like, short direction, high quality bond ETFs, supplanting part of the usual aggregate bond fund allocation.

In light of a jump in interest rates, the inclination is for a sag in bond prices, putting a dent in the value of bond funds. That’s when short duration, high quality bond ETFs can provide a buffer.

On the other hand, investors, regardless of age and stages of life, are right for ETFs – and especially so for retirees on the precipice of retirement, according to moneysense.ca.

Within the financial cycle, The Money Sense ETF list is right for all ages and stages, retirees can safely contemplate a solid subset of picks. A panel of seven ETF experts selects the list. The panel didn’t per se formally designate any of its picks as “retirement friendly,”

According to data compiled in late December and early January by Devin McGinley, director of InvestmentNews Research, advisors are showing an increasing interest in alternative investments. McGinley’s survey of more than 200 advisors and financial professionals revealed that 43% of advisors plan to add exposure to at least one alternative asset class this year, while 46% anticipate increasing their average allocation to alternatives over the next three years. The survey also revealed that advisors said their average allocation to alternatives over the next three years is expected to rise to 15% from a current average of 12% of client portfolios. McGinley explained that an uncertain economic outlook and a recognition of the long-term benefits of diversification are driving the increasing appeal of alternatives. While it’s the responsibility of advisors to navigate client portfolios, McGinley is also seeing increasing pressure from investors. For instance, more than a third of advisors surveyed said they’ve had clients asking about alternative investments over the past six months. When discussing alternatives, the two biggest investor concerns were down markets and inflation. McGinley said that “Clients are asking about alternatives because they’re nervous.” More specifically, his research found that clients are asking about the following asset classes in order: real estate, gold, private equity, liquid alternatives, cryptocurrency, structured notes, and private debt.

Finsum: Based on recent research by InvestmentNews, advisors are showing an increasing interest in alternative investments due to client pressure, an uncertain economic outlook, and the long-term benefits of diversification. 

After struggling under deficits for two decades, pension funds are now flooded with cash due to soaring interest rates. The surplus at corporate defined-benefit plans means managers can now reallocate to bonds, which are less volatile than stocks. This is called “derisking” in the industry. Mike Schumacher, head of macro strategy at Wells Fargo, said the following in an interview, “The pensions are in good shape. They can now essentially immunize — take out the equities, move into bonds, and try to have assets match liabilities.” That explains some of the rallying of the bond market over the last three or four weeks.” Last year’s stock and bond market losses actually helped some benefit plans, whose future costs are a function of interest rates. When rates rise, their liabilities shrink and their funded status improves. For instance, the largest 100 US corporate pension plans now have an average funding ratio of about 110%. According to the Milliman 100 Pension Funding index, that’s the highest level in more than two decades and great news for fund managers who had to deal with low-interest rates and were forced to chase returns in the equity market. Now managers can unwind that imbalance with most banks expecting them to use the extra cash on buying bonds and selling stocks to buy more bonds.

Finsum: Due to stock and bond losses and rising rates, pension fund managers now have a surplus of funds that they plan on allocating to bonds.