Strategy tips from fund managers with USD 3 tn in collective AUM
How some of the world’s biggest institutional players are navigating these strange times: Covid lockdowns. Increasing inflation. Xi Jinping’s Great Capitalist Smackdown in China. Bloomberg interviewed institutional investors with a combined USD 3 tn of assets under management to see how they’re managing their way through a spotty, stop-start recovery and ongoing turmoil in the Chinese markets. Here are their top takeaways on the macro outlook:
#1- Most are surprisingly still bullish on China, though the advice is to tread carefully and to avoid US-listed Chinese firms amid the crackdown on foreign listings. Stocks listed in Singapore, Hong Kong, and mainland China all offer good alternatives, say the money men. “The Chinese central bank will have a more accommodative stance. We don’t think there will be risk of monetary tightening in the short future … We think a large portion of the needed regulatory adjustments are now behind us,” according to the chief investment officer of one private bank with USD 347 bn in client assets.
China isn’t for everybody though, and some are looking to Europe as an alternative: Equities are cheap, vaccination rates are high, and it's well out of the way of the superpower squabble. One investor also flags Indian-listed IT providers as a good pick, adding that they are less impacted by domestic concerns over covid and consumption since clients are often based in western markets.
#2- Inflation concerns are still present with nearly half of those interviewed expressing worry about the impact of rising prices on their bottom lines. The manager of Australia’s sovereign fund warns that high inflation could be “very, very damaging” for returns; likewise, Norway’s huge USD 1.3 tn wealth fund is expecting inflation to hit its bonds and stocks, seeing no solution other than to “sit through it.”
#3- Hedge funds are back: After a so-called dismal decade for managed funds, investors are throwing it back to 2009 and getting excited about hedge funds again. Hedge funds live for drama: more turmoil in the markets means more chances for managers to exploit macro and event-driven trends. “For the first time in six years we’re positive on alternatives, with hedge funds being one of them,” said the CIO of one private bank that commands USD 300 bn.
(Hedge funds, you ask? Yup. They’re back in vogue again — and the guys who will charge you “2 and 20” are so in-demand after a decade in the wilderness, they might just turn away your cash if you’re not ready to write a big enough ticket. Go read: Hedge funds are hot again. Good luck finding one that’ll take your money.)
#4- Technology and sustainability are words on everyone’s lips: Sometimes those two poles pull in opposite directions, as seen with Norway’s sovereign fund, where plans to sell down some assets over ESG and regulatory concerns appear to have come into conflict with the desire to keep a foothold in Chinese tech. Elsewhere, supply chain tech, cell phone towers, digitization, e-commerce, cyber-security, renewable energy and ESG stocks were among the sectors tipped for strong growth.