DES MOINES, Iowa--(BUSINESS WIRE)--Between 2013 and 2015, the number of investors indicating they would use multi-asset class funds in the subsequent three years increased significantly across multiple investor types. This according to the findings detailed in a paper released today by CREATE-Research and commissioned by the Principal Financial Group®.
The paper Asset Allocation: Survival of the Fleetest, analyzes data from the 2013-2015 CREATE-Research surveys, with a focus on asset allocation investment trends in the defined benefit, defined contribution, retail, and high net worth investor classes. While the search for yield is nothing new, it has intensified significantly in the two years analyzed. Investors are abandoning their asset class preference for a multi-asset approach that chases short-term opportunities in the face of valuation-distorting quantitative easing programs in the United States, Europe and Japan.
“Investors have had to wrestle with three conundrums since the financial crisis. First, global growth has been sub-par and uneven. Second, the global debt mountain has grown from $142 trillion in 2008 to an all-time high of $199 trillion in 2014. Third, the forthcoming rate-hike cycle has raised alarm bells across the globe, as markets have become addicted to cheap credit,” said Professor Amin Rajan, CEO of CREATE-Research and the author of the report. “Faced with these conundrums, investors are responding in two main ways: they have become asset-class agnostic and they are displaying a preference for unconstrained multi-asset class funds.”
Findings by investor type show:
- Defined benefit plans have increasingly favored infrastructure and real estate (for capital growth, inflation protection and regular income), traditional passive funds, global equities, low-variance equities and alternative credit (for high yield). During the same time, bonds and emerging market equities and bonds have fallen out of favor.
- Defined contribution plans have moved toward advice-embedded products and increasingly favor diversified income and diversified growth funds; target-income, target-date and target-risk retirement funds, and passive equity/bond funds; while actively managed equities and bonds showed a decline.
- Retail investors are transitioning to solutions-driven investing and have increasingly favored multi-asset class funds and passive equity/bond funds; while capital protection funds, actively managed equities/bonds and mutual funds have lost favor.
- High net worth investors are seeking uncorrelated absolute returns, and during the 2013-2015 period, increasingly favored private equity, real estate, hedge funds and capital protection funds, while interest in commodity funds and actively managed equities/bonds have fallen slightly out of favor.
“Asset allocation, with a focus on outcome-oriented investing, has taken on a new importance for investors as they seek to manage market volatility and ultra-low interest rates,” said Julia Lawler, senior executive director of Principal Portfolio Strategies, an asset allocation boutique of Principal Global Investors. “With an eye toward retirement, they seek a wide range of investment strategies using a blend of bond and conservative equity exposure to provide diversification designed to deliver an income stream and capital appreciation, while reducing volatility risk. More than ever, asset allocation is an important strategy across all investor groups.”
The findings are based on a survey of more than 700 pension plans, sovereign wealth funds, asset managers, pension consultants and fund buyers across 29 fund jurisdictions, with a combined AUM of $26.8 trillion. The survey was followed by 102 interviews.
The full paper is available at: https://www.principalglobal.com/knowledge/insights/asset-allocation-survival-fleetest.
CREATE-Research is an independent think tank specialising in strategic change and the newly emerging business models in global asset management. It undertakes major research assignments from prominent financial institutions and global companies. It also undertakes advisory work for senior decision makers in reputable organisations across Europe and the U.S. Its work is disseminated through high profile reports and events which attract wide attention in the media. Further information can be found at www.create-research.co.uk.
About Principal Global Investors
Principal Global Investors is a diversified asset management organization and a member of the Principal Financial Group®, with expertise in equities, fixed income and real estate investments, as well as specialized overlay and advisory services. Principal Global Investors manages $3462 billion in assets1 primarily for retirement plans and other institutional clients2.
About the Principal Financial Group
The Principal Financial Group® (The Principal®)3 is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $539.9 billion in assets under management4 and serves some 20.1 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
Investing involves risk, including possible loss of principal. Asset allocation and diversification do not ensure a profit or protect against loss.
Insurance products and plan administrative services are provided by Principal Life Insurance Company. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities are offered through Princor Financial Services Corporation, 800-547-7754, Member SIPC and/or independent broker/dealers. Securities sold by a Princor Registered Representative are offered through Princor®. Principal Funds Distributor, Princor and Principal Life are members of the Principal Financial Group®, Des Moines, IA 50392. Certain investment options may not be available in all states or U.S. commonwealths.
1 As of June 30, 2015.
2 Principal Global Investors is the asset management arm of the Principal Financial Group® (The Principal®) and includes the asset management operations of the following subsidiaries of The Principal: Principal Global Investors, LLC; Principal Real Estate Investors, LLC; Principal Enterprise Capital, LLC; Liongate Capital Management LLP; Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Columbus Circle Investors; Edge Asset Management, Inc.; Morley Financial Services Inc.; Finisterre Capital, LLP; Origin Asset Management, LLP; Principal Global Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd.; Principal Global Investors (Australia) Ltd.; Principal Global Investors (Japan) Ltd.; Principal Global Investors (Hong Kong) Ltd.; CIMB-Principal Islamic Asset Management Sdn. Bhd.; and the majority owned affiliates of Principal International, Inc. Assets under management includes assets managed by investment professionals of Principal Global Investors under dual employee arrangements with other subsidiaries of The Principal and assets managed in accordance with investment advice provided by Principal Global Investors through the delivery of a model.
3 “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
4 As of June 30, 2015.