They told Investment Week they expect this to continue with alternatives, certain areas of fixed income markets and "stable" equities, which are anticipated to be the most popular choices for the rest of the year.
"Investor mindsets have changed significantly over the course of the year," explained Christophe Girondel, deputy CEO of Nordea Asset Management.
"With inflation fears and uncertainties surrounding the war in Ukraine clearly impacting sentiment, positioning has undoubtedly moved more cautious as investors seek strategies with proven defensive qualities."
This is a dramatic shift from the ‘risk on' approach of the previous few years, which despite periods of difficulty due to Covid-19, saw investors pile money into growth equities.
Alternative assets
Liisa Juntunen, head of distribution at Mirabaud Asset Management, noted the difficult start to 2022 revealed a weakness of "traditional diversification" as bonds and equities both suffered.
In the first two quarters of this year, bonds and equities fell in tandem. In the six months to the end of June, the MSCI World fell 11.1%, while the Bloomberg Sterling Gilts fell 14.8%, according to FE fundinfo.
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Robert Hall, head of UK wholesale at PGIM Investments, said this has led to increased demand for "non-core and previously unloved asset classes", which he said are returning to the fore.
"After many years in the investor wilderness, liquid alternatives have also seen significant demand in recent months," according to Hall.
He explained that liquid alternatives experienced a period of "sizeable growth" but then the market "fell out of love" with the asset in recent years. However, he said that those investors looking for something uncorrelated to equities and bonds have returned to the asset class.
In the case of PGIM, they are seeing "elevated" interest in global listed real estate.
Chris Elliott, head of wholesale distribution at Gresham House, agreed and said capital that had previously been flowing into growth funds has been put into alternatives, with strong interest in their two real asset investment trusts: Gresham House Energy Storage fund and Residential Secure Income.
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Fixed income debates
However, despite bonds falling with equities in the first half of the year, the distribution heads are still seeing relatively strong interest for the asset as it has defensive qualities.
Girondel highlighted European covered bonds as being "increasingly embraced by investors".
"While the covered bond market typically flies under the radar, investors are taking notice of the strong safe haven qualities, as well as the potential for active managers to generate alpha," he explained.
Meanwhile, Hall said multi-sector fixed income strategies were doing well, particularly ones that are able to "dynamically manage duration".
Juntunen agreed flexible bond mandates are proving popular as investors recognise higher yields and continued uncertainty mean there is "significant opportunity" across fixed income.
Equities and ESG
Equities also continue to be a key part of portfolios, but there has been a shift away from growth names to value names.
"Established companies able to consistently generate relatively stable earnings, dividends and cash flows have understandably exhibited far lower price volatility over the turbulent first half of 2022," noted Girondel.
His peers agreed, all highlighting their strategies that invested in "stable" equities were performing better.
This has come at the expense of ESG strategies, many of which have lagged in the first half of the year and now are seeing a "cooling of demand", according to Gresham House's Elliot.
Still, he and PGIM's Hall agree the long-term trend towards ESG strategies is here to say.
In the short-term, there is still significant uncertainty among asset management houses about which strategies will prove popular.
Juntunen explained that, in general, investors hesitated to "confirm any asset allocations decisions made in early 2022" and so flows are only really starting to appear as some re-consider or put their plans to work.
It remains to be seen if current predictions and trends of clients behaviour will come to fruition by the end of 2022.