Presenting in London, Pimco head of global portfolio management Scott Mather conceded that when the US Federal Reserve announced it was to commence tapering of its quantitative easing programme there was an abrupt reallocation of capital. However, in his view, investors allocate to either equities or fixed income from a risk perspective, and when risk is taken off the table in the fixed income space one of the results is a move to cash.
Equity allocations, meanwhile, have remained fairly static. Figures from Pimco and ICI US Retail Fund flow statistics show there was a sharp outflow of some $60bn from bond vehicles following the tapering announcement, but no commensurate rise in equity fund flows.
Richard Philbin, chief investment officer of Harwood Multi-Manager, said that as an asset allocator it is not easy to know how to play this, however.
“Long-term capital in the markets, debt or equity, is pretty much owned by insurance companies for pensions, and actuaries dictate where assets should go,” he said.
“Unless there’s a lot of freedom and flexibility [a significant asset allocation shift] isn’t really going to happen.”
Philbin also noted that while cash is currently delivering a return below the level of inflation, capital protection is still an attraction: “No one is talking about inflation or interest rate rises. The appetite for risk is not in the fixed income space, people are looking more at liability matching.”
Philbin also said that the wall of money which came out of emerging markets came from ETFs rather than active funds, which is partly why we have seen so much volatility in markets.
