Global institutional investors are diversifying into uncorrelated assets to hedge against rising inflation, with the use of skilled active managers their next most popular strategy, a study finds.
North American investors, the cohort most concerned about inflation, are almost twice as focused – at 42 percent – as their European (24 percent) and Asia-Pacific (22 percent) peers in generating enough yield without adding excessive risk. But more than one third (34 percent) of European investors are focusing on sustainable or ESG investments in the inflationary climate, ahead of their counterparts in Asia-Pacific (20 percent) and North America (14 percent).
A CoreData Research study of almost 400 institutional investors worldwide finds the shift to actively managed, uncorrelated strategies stems from an uncertain backdrop of inflation and monetary policies. Inflation was cited by more than one third (34 percent) of investors as the biggest risk to investment portfolios. Inflation fears are highest among North American investors (40 percent).
The next biggest risks to portfolios, according to the global investors surveyed, are central bank tapering (12 percent), asset bubbles in developed markets (11 percent) and interest rate rises and their impact on bond markets (10 percent). Fewer than one in 10 (9 percent) identify slowing economic growth as the main danger, although Asia-Pacific investors (15 percent) harbor more concerns.
Andrew Inwood, founder and principal of CoreData, says institutional investors are putting their faith in active management as they look to navigate today’s uncertain and inflationary backdrop using uncorrelated diversifiers.
‘This is a real vote of confidence for active managers, which now have an opportunity to demonstrate their ability to both provide downside protection and generate uncorrelated alpha in testing market conditions,’ Inwood says.