Fixed income funds saw a surge in interest from financial advisers in the second quarter of 2021 while multi-asset attention has depleted, research from Square Mile has revealed.
According to its quarterly Market Intelligence Report, views of fixed income funds within Square Mile’s Academy of Funds accounted for 35.2% of all searches in the second quarter, up from 19.9% in the first quarter of the year.
Meanwhile searches of multi-asset funds halved to 16.3% from Q1, while equity views remained broadly static at 48.1%.
In pole position of all the Square Mile rated funds was the M&G Emerging Markets Bond Fund, which accounted for one in five of fund views, a surge of 19.3% on the last quarter. The fund’s popularity also led M&G to be the most view asset manager, while the sector it resides in, IA Global EM Bonds Blended, was also the most searched peer group.
“The fact that there was no discernible trend among the most researched fund over Q2 might suggest that advisers are looking at a beadier universe of investment opportunities for their clients,” said Jock Glover (pictured), chief operating officer, research and consulting at Square Mile.
“With the IA Global EM Bonds and IA Global being the most viewed IA sectors and the IA UK All Companies dropping down the ranks by 13.4%, there is the implication that advisers are spreading the net further afield, although the IA Global Equity Income sector continued to be popular, coming in third place,” he added.
Equity preference
However, while fixed income funds may be rousing the attention of advisers, NN Investment Partners (NN IP) is maintaining a preference for equities over government bonds within its multi-asset portfolios.
In a ‘cruise control’ environment, whereby it will take several months to determine if inflation is transitory or if the Federal Reserve might move to tapering, NN IP maintain equities remain more attractive than government bonds.
Overall, however, NN IP is maintaining a neutral outlook for risky assets in its second half of the year outlook, and says a balanced approach is the correct one to adopt.
“The economic cycle is progressing at an unusually high speed and over the coming period it will morph from the recovery phase into the mid-cycle phase,” said Patrick Moonen, principal strategist at NN IP.
“This is not necessarily negative for risky assets but warrants a more balanced approach, one that moves away from pure cyclical growth exposure towards stable and/or secular growth,” he added.
Top-down cyclical risk
As a result, NN IP scaled back its top-down cyclical risk in within its model portfolio during the second quarter of the year.
“We reduced equites from a moderate overweight to neutral,” said Moonen. “In commodities we cut our oil exposure. In the rates market, we maintain a moderate underweight in US Treasuries.
“On a longer time horizon, Treasury yields are on a rising trend, given the strong macro data and the Fed’s likely next steps.”
Within its overall fixed income exposure, while underweight in US Treasuries the NN IP multi-asset portfolios have large overweights in eurozone and US high yield. This, it said, is because high yield offers an asymmetric return profile, outperforming when government bond yields drop and stabilising when they rise.
In its equities exposure meanwhile, Moonen said allocation is geared towards benefitting from the twin themes of rising bond yields and increasing bond prices.
“Exposure has been raised to the health care and communication services sectors whilst keeping overweights in financials and materials,” he said. “Regionally, we are overweight in eurozone equities.”
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