Australian investors are looking through the short-term market noise created by this year’s US election cycle to harness the major trends of deglobalisation, disruption and decarbonisation by increasing their exposure to global equities and private equity, according to this year’s flagship Schroders Global Investor Insights Survey.
The annual landmark survey of almost 3,000 investors globally - including 159 Australian respondents - representing some $74.5 trillion in assets across the full spectrum of asset classes – found that high interest rates (70%), economic downturn and inflation risk (both 68.8%), and the impact of central bank policy (61.3%) usurped any concerns about this year’s election cycle for Australian financial advisers and investors.
Instead, investors are committed to their long term investment strategy (45%) and believe active managers should help them outperform passive in the current environment (61.3%). Similarly, 72.5% of advisers agree active managers are better for specialist approaches required in these macroeconomic conditions.
Simon Doyle, CEO and CIO, Schroders Australia said:
“As an active manager, it is important to understand not only what drives financial markets, but also investor behaviour during periods of change and market uncertainty. The latest survey results demonstrate that investors are thinking strategically and anchoring to fundamentals, not noise, in evaluating their investment options.
“The survey also recognises that active management has an important role to play in delivering long term objectives and in navigating the shifting fundamentals that are characteristic of the current environment. Diversification also remains an important theme with the contributions of both private and public markets across the investment spectrum highlighted.”
Indeed, the study found that macroeconomic risks, such as higher than expected inflation or a slowdown in growth (65%), central bank policies (55%) and a liquidity crisis (51.3%) were seen as the biggest threats to fixed income investing.
In this environment, private credit (48.8%) and investment grade corporate debt (42.5%) were highlighted as the biggest investment opportunities within the fixed income space in the next one-to-two years for Australian financial advisers.
On the other hand, almost half of those surveyed expect to maintain their global equity allocation (48.8%) over the coming two years, with 38.8% of respondents increasing their investment over the same time period.
Alex Tedder, Co-Head of Equities, Schroders, said:
“It’s interesting to note that respondents are overall quite positive on the prospects for active managers. Equity markets this year have been dominated by a small number of companies. This has been a global trend, but has been particularly pronounced in the US, with the technology and AI phenomenon very powerful in that market. Since July, we’ve had a reassessment amid changing interest rate expectations.
“It may be time to look at areas that have been out of favour and have become attractive from a valuation standpoint. Certain sectors such as utilities, REITS, biotechnology and alternative energy are potentially more interesting in this environment of lower inflation and interest rates. This is the type of situation where active managers can be nimble in allocating earlier to those parts of the market that we think will be the future winners.”
Investment in private markets continues to grow with nearly half of all advisers surveyed (48.8%) already offering a private markets investment solution to clients, with 21.3% of advisers planning to do so in the next 1-2 years (slightly up from the global figure – 18.7%). It is now regarded as a core component of portfolio construction for wealth investors. Key reasons for allocating to private markets include higher returns and greater portfolio diversification. More than half (53.6%) of Australian respondents wish to increase allocations to private equity in the next 12 months, followed by 46.4% in private debt and 39.3% in renewable infrastructure equity.
Georg Wunderlin, CEO, Schroders Capital, said:
“Private markets are an essential source of creative and long-term capital to finance fundamental structural shifts in our societies – driven by decarbonisation, deglobalisation, demographics and the AI revolution. Investors are recognising the potential of private assets to drive positive change, and, therefore, higher returns.
“In addition, private assets are valued as a source of diversification. Following shifts in the rate environment private market investments are at a pivotal moment. What is required in the future is even deeper skills of managers to source, execute and manage private assets. Consequently, investors must be increasingly selective and partner with/work with managers that possess the ability to control value creation.
“It is crucial to enable not only institutional but also individual investors to profit from the benefits of private markets investments. Accessibility of private asset classes has improved significantly in recent years on the back of a much greater array of fund structures aimed at individual investors. We see it as a key mission for us to continue to drive this trend."
The Global survey results – not including the Australian findings – can be found here: https://www.schroders.com/en-au/au/adviser/insights/global-investors-look-through-election-uncertainties-to-double-down-on-global-equities-and-private-equity/
