Rising rates and growing geopolitical concerns also cited as top risks in the year ahead.
FAIRFIELD, Iowa/SUMMIT, NJ (April 23, 2018) — February’s spike in volatility caused nearly half (42.1%) of investors to adjust their equity market outlook, according to the results of a survey published today by BarclayHedge and Markov Processes International (MPI).
The BarclayHedge, MPI Volatility Angst Survey collected responses from 164 investment professionals about their thoughts on equity markets, economic growth, and the use of managed futures to fend off stock market downturns.
In addition to concerns over increased volatility in the market—which saw its largest-ever one-day spike in the VIX indicator on Feb. 5, 2018—respondents listed rising rates (30.7%) and growing geopolitical concerns (21%), including the threat of trade war, as their top concerns over the next 12 months.
When asked how they would adjust portfolios to respond to sustained volatility in the market, more than half of respondents (51.8%) chose diversification, either by asset classes or strategies (28.6%) or allocations to alternatives (23.2%). Another 23.2 percent said they would increase cash exposure, while just 8 percent explicitly indicated they would increase exposure to active managers.
Historically, professional investors have used managed-futures trading to profit from plunges in the equities markets. That did not happen this year: managed-futures traders lost money like many others did in the February swoon. Nevertheless, 60 percent of respondents supported the use of managed futures to diversify their investments amid market downturns.
“Managed-futures investments are among the best to take advantage of market volatility, because they allow traders to profit from complex bets against market trends,” said Sol Waksman, founder and president of BarclayHedge. “The failure of managed-futures funds to exploit February’s market gyrations is disappointing, but it remains to be seen if that was just a blip or a warning sign of deeper problems.”
The survey also queried investors for their views on a perpetual point of contention: high hedge fund fees. Despite downward pressure on fees in recent years, only a quarter of respondents (25.7%) were satisfied with current fees. The vast majority of respondents (74.3%) said fees are still high or that they wanted to see them come down further.
“There is no question that market volatility, rising rates, and growing geopolitical concerns have investors concerned and seeking portfolio diversification,” said Rohtas Handa, EVP, Head of Institutional Solutions at MPI. “But years of downward pressure on fees and the rapid growth of passive investing has conditioned the market to look for a lower cost means of equity market diversification. The goal of the work we are doing with BarclayHedge is to deliver on that growing market need.”
The BarclayHedge survey is conducted quarterly, with comprehensive results available here.
The BarclayHedge, MPI Volatility Angst Survey went out to 4,414 institutional investors between March 28 and April 3, 2018. We received 164 responses from people working in funds-of-funds, multi-advisor futures funds, family offices, financial institutions, pensions, endowments, institutions, and other specialties. Respondents also included financial planners, wealth managers and registered investment advisers. Respondents were asked to select one answer for each question.
Sol Waksman is the founder and president of BarclayHedge. Waksman is an industry expert and experienced media source, providing perspectives on hedge fund and managed futures trends. BarclayHedge is the global leader in providing independent, research-based information services to the alternative investment industry. Founded in 1985, Barclay currently maintains data on more than 6,800 hedge funds, fund of funds, and CTAs. No one has been in the business of collecting alternative investment data longer than BarclayHedge. Institutional investors, brokerage firms, and private banks worldwide utilize BarclayHedge indices as performance benchmarks for the hedge fund and managed futures industries.
Markov Processes International (MPI) is a leading independent provider of quantitative investment research, technology and analytics for the global investment management industry. MPI’s flagship Stylus solutions are used by hundreds of firms to make smarter investment research, portfolio construction and optimization, performance analysis, risk surveillance, distribution and reporting decisions. MPI Stylus can be delivered as a desktop, enterprise-hosted or cloud-deployed solution. MPI’s Enterprise Solutions team also offers customized configuration and implementation services to meet your organization’s specific needs. For more than 25 years, MPI has been a trusted, transparent and objective investment technology and insights partner to the world’s leading pensions, endowments, sovereign wealth funds, wealth management firms, hedge fund managers, fund of hedge fund managers, institutional consultants, investment advisors, asset managers and securities regulators. Follow us on Twitter @MarkovMPI, connect with us on LinkedIn and read the latest MPI research.
BarclayHedge indices as performance benchmarks for the hedge fund and managed futures industries.