Q4 2017 Investment Research – Is investor confidence on the uptick?

March has been a funny old month: markets up, markets down; Donald Trump, trade, the promised if not promising end of cheap money in sight, inflation up, inflation down, inflation stable, depending on where you are sitting in Europe. Global growth still on track; and trade wars being sidestepped. Despite short term sometimes contradictory trends, investor confidence looks to to be on the uptick according to the State Street Investor Confidence index, which rose in the month by 4.8 points to 111.9 and new investment research from CAMRADATA Live.

The Global Investor Confidence Index increased to 111.9, up 4.8 points from February’s revised reading of 107.1. Investors across all regions expressed an improved appetite for risk, with the North American ICI rising by 5.8 points to 109.8, the European ICI increasing by 1.6 points to 102.1, and the Asian ICI increasing by 1.3 points to 109.6.

Equally, publishing the results of more than three years’ worth of data from online manager research platform CAMRADATA Live covering five groups of assets, investors looked to be gaining confidence in all sectors in the fourth quarter (Q4) last year. Equity markets continued to rally over the quarter with Japan and Asia ex-Japan stocks leading the charge. Stocks also rose in India, as the government announced plans to recapitalise the state banks.

Sean Thompson, Managing Director, CAMRADATA says, “The USA [also] had a strong economic performance and in Europe there were signs that the uncertainties surrounding Brexit may be easing as an agreement was struck in December to move talks to future trade agreements.

After a few blips early year the trend looks to be set fair, at least for now. “After a volatile February, institutions seemed to have re-embraced risk in March, with the ICI rising across all the regions we track,” says Kenneth Froot at State Street Associates and a founder of the index. “However, increasing rhetoric over protectionist policies and fears over a potential trade war are still festering and have the potential to impact confidence.”

A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors. “Although the global ICI increased this month, it will be interesting to see if continued Federal Reserve tightening and recent money market stress, highlighted by rising US LIBOR-OIS spreads, will impact investor sentiment going forward,” adds Rajeev Bhargava, managing director and head of Investor Behavior Research, State Street Associates.

According to CAMRADATA Live data, how it will play out over the medium term is still open to question, as there were hints at the end of last year of mixed approaches, at least towards equities. Assets under management (AuM), in Global Equity products, totalled just under $762.6bn at the end of Q4 2017, $11.5bn more than it was in Q3. Even so, the Global Equity universe continued to see investors reducing their allocation in Q4, which saw outflows of $7.8m and the firm underscores that this universe has not seen any positive inflows since Q3 2016.

Despite this loss, some managers are still reporting positive inflows into their products. In Q4, Old Mutual Global Investors (UK) Ltd was ranked as number one in the asset manager inflows table with $2,591m added to their AuM, followed by MFG Asset Management in second place with $1,272m. T Rowe Price Group, Capital Group and AXA Investment Management took the next three spots.

Performance too was a mixed bag. In Q4 nearly 100% of managers produced a breakeven or positive return, which followed the trend in returns from the rest of 2017. The lowest return produced was -6.71% and the best performing product achieved is 14.61%, giving a spread of 21.32% between the top and bottom performer in just three months.

Emerging Market Equity products had $553.2bn in AUM as at the end of Q4 2017, up $30.8bn assets from Q3; and in the segment 100% of managers achieved positive returns. The lowest return produced is 1.05% and the best performing product achieved 12.74%, giving a spread of over 11.69% between the top and bottom performer in just one quarter. Moreover, over a three-year period, again 100% of managers achieved a breakeven or positive return in this asset class. The lowest annualised return achieved was 2.03% and the highest was 19.42%.

According to the CAMRADATA IQ quant screens for the three years to end 2017, the top ranked manager, within the All Cap universe with a style bias of Core, is Artisan Partners Limited Partnership, with an IQ Score of 0.91, for their Artisan Emerging Markets Composite. Other stand out Core products are from Hermes, BlackRock and Principal Global Investors.

The emerging market debt (EMD) universe also saw its asset rise by almost $12.3bn since Q3 2017. EMD products continued to see net inflows of just over $11bn across the universe within Q4 2017. Ashmore Group had the largest asset inflows totaling $2,298m during the quarter. They were followed by Investec Asset Management, BlackRock, Franklin Templeton Investments and GAM.

Just over 92% of products achieved a breakeven or positive return in the EMD universe this quarter, which was a drop from Q3 2017 when 100% of managers achieve a breakeven or positive return. This is compared to just fewer than 100% of products achieved a breakeven or positive return over a three-year period.

The lowest return reached in Q4 2017 was -1.56% and the best performing product achieved 3.12%, giving a spread of 4.68% between the top and bottom performer.

AUM in diversified growth funds are reported by CAMRADATA Live to have seen a relatively modest uptick of just under £1.6bn since Q3 2017 and now total £188.7bn as at 31st December 2017. This means the DGF universe has seen a continual growth of the total assets for the past 36 months.

Q4 continued to see an increase in positive performance outcomes within the DGF universe, with 95.7% of products achieving a breakeven or positive return. The lowest quarterly return produced is -1 % and the best performing product achieved 6.29%, giving a spread of 7.29%pa between the top and bottom performer. Looking at the three-year spread of annualised returns; once again all products achieved a breakeven or positive return. The lowest annualised return produced is 0.65% and the best performing product achieved 14.41%, giving a spread of around 13.76%pa between the top and bottom performer.

According to the CAMRADATA IQ quant screens for the 3 years to 31st December 2017, in the universe of products with an objective of cash plus three to five percent, Threadneedle’s Global Multi Asset Income Fund (T9GMAI) achieved the top position again with an IQ score of 0.85%. Other stand out products came from AB (AllianceBernstein), Aberdeen and Legal & General.

Read the article via the FTSE Global Markets website here.