Multi-managers Raise Exposure To Alternative UCITS Funds Amid 'choppy Equity Valuations'

The research tracks the asset allocation shifts of 32 multi-manager and model portfolio funds that follow a balanced profile with combined assets under management (AUM) totalling £11.2bn, while also looking at the allocations of 16 income-focused multi-manager funds totalling £5.5bn.

Harry Dickinson, managing director at Harrington Cooper, said the managers had expressed concerns about the impact of rising inflation and interest rates in both traditional bond and equity markets resulting in alternative UCITS fund exposure growing to 10.47% in balanced portfolios.

He said: "Investors have become more cautious over the last year. Not to the extent that they want to be out of equity markets, but they want to be in products such as equity market neutral strategies or are looking at directional equity long/short.

"Allocation to alternatives reflects [both] defensiveness and bullishness. Investors are concerned about choppy valuations in the US but they still want to be exposed.

Allocations to alternatives in sovereign wealth funds increase to almost a quarter

"With ongoing rate rises in the US and rich valuations, there are various things in the offing that make investors concerned. Our wholesale clients are constantly looking for new ideas in the alternatives space so demand fully outstrips supply."

The research also found equities continued to be in favour among balanced portfolios, which allocated an average of 54% to stockmarkets, an increase of 1.5% on the previous quarter.

Exposure to fixed income fell 0.6% to 22.9% in the balanced portfolios, while overall alternatives exposure moved slightly lower to 14%, despite the increased appetite for UCITS alternatives. Cash was also reduced by 0.55% to 6.7% while property remained steady at 2.5%.

Within income portfolios, equities also saw an increase on the previous quarter, up 1.22%, with Japan proving popular - exposure increased 0.81% to 2.62% while allocations to Europe fell 0.58% to 5.17%.

In contrast to the balanced funds, income funds saw a hike in fixed income exposure of 0.65% to 38.64% in Q4, while exposure to alternatives rose 0.74% to a 21-month high of 7.8%.

"Japan continues to remain attractive to equity investors. Anecdotally from clients, we know it is an area of interest on a valuation and fundamental basis," said Dickinson.

Popular funds

The most commonly-held funds were, in no particular order, the £96m Invesco Perpetual Global Financial Capital fund, the £2.6bn Janus Henderson UK Absolute Return fund, the £2.8bn BlackRock European Dynamic fund, the £1.6bn Royal London Sterling Credit fund, the £2bn Henderson Strategic Bond fund, the £2.3bn Man GLG Japan Core Alpha fund and Terry Smith's £14bn Fundsmith Equity fund.