European investors are turning to multi-asset funds with a riskier inclination than before, as they seek to hedge their bets in an unpredictable and uncertain environment.
That’s according to the latest test of European market sentiment by research group Cerulli. This comes as inflationary pressures, rising rates and a war in the region combine to create a volatile market.
Morningstar data for multi-asset funds in Europe indicated that there had been an annual growth in allocations of 12.5%, meaning that €1.8 billion is currently invested here. The majority remain in moderate or conservatively managed funds, but there is a growing appetite for different vehicles.
Using a gauge of commodity trends, the research group said German and Italian investors were among the most vocal in their expectation of increasing investment here. Italy has already seen considerable inflows over the past year, while German investors plan to increase allocations over the next two years.
Multi-asset funds have always been favored as a balanced or conservative allocation tool, but Cerulli said more aggressive strategies, which had higher equity exposure, were becoming commonplace.
Another winning bet identified was investments with target maturity characteristics, whereby investors can lock in return or return expectations over a given period, rather than being buffeted by changing market dynamics.
Request for alternatives
As part of the analysis, Cerulli also noted that many multi-asset investors understand the need to offer alternative investment ideas, which could be provided as part of a multi-asset investment vehicle.
Using anecdotal evidence, Cerulli said several managers interviewed for the latest sentiment check said customers were asking for alternatives more frequently. This was particularly evident in the UK market, where 40% of wealth managers expect to increase bets in this space.
Cerulli also cited German investment giant DWS, which helped add alternative asset classes, including liquid alternatives, to multi-asset portfolios in the year 2021. In addition, other groups would study the possibility of adding exposure to cryptocurrency. through multi-asset funds.
“Multi-asset funds will continue to be judged in Europe for their ability to provide adequate diversification, portfolio protection and positive investment returns. Managers operating in the space will be compelled to continue to innovate in their approach and deliver a robust multi-asset strategy that can withstand future market headwinds,” Cerulli said in the report.
Cerulli added that sustainability is also becoming more important in multi-asset strategies, as many managers across Europe strive to extend their ESG value proposition to asset classes other than equities, which represent currently most of the assets under management of European mutual funds.