Natixis AM | We have recently published the third edition of our Spanish Portfolio Barometer. It’s a study that provides ideas and perspectives about Spanish portfolios and the investment decisions that are being taken, via the analysis of 152 model balanced portfolios, managed by the 21 main asset management firms in Spain, with data provided by VDOS on June 30, 2016.
According to this study, the returns on Spanish portfolios were mixed until June. Conservative portfolios continued to register positive returns, while returns on moderate and aggressive portfolios were slightly negative. There were outflows from all risk profiles.
If we compare the current study with the second edition, which was carried out based on data from the first quarter of 2016, the main changes that are seen in conservative portfolios are:
• Exposure to fixed income has risen via funds in euros: euro high yield, emerging markets local currency debt and US debt. In euro fixed income, which accounts for 62% of exposure in this asset class, there was a rise in funds that matured under 12 months and corporate bond funds. As such, there was a reduction in public debt and aggregates.
• The exposure to equities rose slightly, but with an important variation of the allocation mix within the asset. Positions in Europe and Japan were reduced, and they rose in US funds. Asset managers are substituting higher volatility for equities with lower volatility.
• The reduction in alternative assets is, above all, due to cash outflows from long/short debt strategies, while exposure to long/short and market neutral equities held steady with no changes.
With regard to equities, Spanish stocks saw a reasonably modest performance compared to European and global. In fact, there has been a reduction in exposure to the Spanish bourse in aggressive portfolios, which is due in part to its recent weakness and also its high volatility.
According to Juan José González de Paz, senior investment consultant at the Portfolio Research and Consulting Group (PRCG) at Natixis Global AM market:
“Returns according to styles showed a substantial disparity between the US and Europe. The value style shined in the US and growth style in Europe. This underlines the importance of the analysis of styles for portfolio risk management, given that each style can behave in a different way depending on the region.”
The major concerns: diversify, achieve returns and Brexit
Another of the conclusions of the Spanish Portfolio Barometer is that among the main concerns of investors are the difficulties in terms of diversification, of achieving their return targets and the currency risk in investments in the United Kingdom. Finding strategies that can offer a certain amount of diversification is ever more complex. Not only has the volatility of equities risen, but also the correlations between portfolios and some strategies that should help to diversify those portfolios, such as multi-asset funds and long/short equities. With the aim of increasing diversification, some investors are starting to consider emerging market debt.
What’s more, Spanish investors are concerned about how to reach their target returns in a context of very low performing European sovereign debt. Traditionally, peripheral bonds compensated the low returns of the public debt of the main European economies. But now, after considerable compression of the differentials, investors are adopting a more global investment strategy. And something similar is happening in equities: the low returns and high volatility of Spanish and European equities is prompting investors to diversify into US equities.
Finally, given the major depreciation of the pound sterling after the Brexit vote, investors are more concerned about their exposure to UK assets without coverage. However, the swift rebound of the equities markets after the referendum reduced concerns over the effect of Brexit on the financial markets.
Sophie del Campo, general manager at Natixis Global AM for Iberia, Latin America and US Offshore, indicates that:
“At the present time it is more important than ever that investors rely on their financial advisors. They are the investment professionals who can best assist them with the diversification of their portfolios, to take on the necessary risk to achieve their earnings targets, and to manage their emotions at times of volatility or uncertainty.”
