Barings rejects great rotation claims

Barings has rejected the idea of a great rotation out of fixed income and towards equities, rather seeing a marginal difference in sales between the two asset classes.

Barings rejects great rotation claims

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Head of business development at the group David Stevenson said sales figures for December showed interest in fixed interest was relatively flat, with a higher level of interest in January and February, while on aggregate, fixed income sales in European-domiciled funds were “just below” those of comparable equity products.

He went on to say that taking a more granular look showed different risk appetite at country level with – perhaps unsurprisingly – the German market taking a more cautious stance and the Italians favouring higher risk assets, for example.

While global emerging market equities have been battered due to volatile currency movements seen since last year and broader debt and equity volatility, questions have been raised over the sustainability of their growth prospects.

Natural rebalancing

But Stevenson said what is more likely, rather than a flight to perceived 'safety', is that having ploughed into GEM equities over the last few years and a natural rebalancing is now taking place.

"While money is flooding back into developed market equities, it’s not exactly a flight to safety and away from risk. If you look at what investors are buying, it’s large funds, large-cap strategies, but these aren’t really the safest bet anymore. If anything they are chasing growth as small and mid-cap strategies are picking up."

He added over the last 12 months, European large-cap equities had taken in €17bn of net flows while European small and mid caps had taken in €7bn over the same period.

Stevenson said the role of GEMs in a portfolio had shifted from a satellite holding to core, with frontier markets taking the crown as drivers of higher alpha, lower correlation exposure.

As the macro picture has stabilised on the continent, investors are now more willing to look at Europe as a region, and to the US as well, he said. While investors had shunned the region there now sit well-managed companies with strong balance sheets waiting to attract new money.

The growth of multi-asset and asset allocation models now form a core component of portfolios, which meant the 'building blocks' were slightly different than several years ago.

"Looking at the EM sell-off, it’s not exactly a flight to safety and away from risk, rather that investors are just looking for growth."General Pics

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