Certitude Global Investing Intentions Index Report shows investors looking for international investment opportunities to help manage volatility
Craig Mowll
After a volatile start to 2014, appetite for overseas assets was up with the March Certitude Global Investing Intentions Index (CGIII) jumping by 15% to the second highest level since inception (June 2013). This just one month after intentions to allocate off-shore hit a low in February.
The Certitude Global Investing Intentions Index (CGIII) collates the views of over 500 actively engaged leading1 investors and measures their net demand for global investments. It forms part of the larger Certitude Global Investing Intentions Report produced each month by Investment Trends.
According to the Report, demand for international shares is likely to be driving the increase in intentions to invest globally. The net percentage of investors intending to allocate to international equities rose to 16% in March (up from 14% in February). Meanwhile, intentions to increase exposure to Australian equities waned, dropping from 29% in February to 23% this month.
Craig Mowll, CEO of Certitude Global Investments said: “These results suggest that investors are rethinking their geographic allocation to take advantage of international investment opportunities, shifting assets from domestic to international equities. This is a smart diversification move for many Australian investors who historically are overweight domestic equities, meaning their portfolios carry a lot more risk should our economy experience a downturn.
“This month we also saw that investors’ concern level with global markets was just slightly above the all-time low from January 2014, despite many investors expressing concerns over China’s economic stability and the situation between Russia and Ukraine. The slightly lower fear level corresponds to the high demand we’re seeing for international shares.”
Managing volatility a theme for investors
The report also revealed an uptake of investors looking to use hedge funds to gain entry into the international market. Equities continue to be the asset class of choice for a large majority of those intending to allocate offshore, according to this month’s findings. However, March saw a pickup in interest for hedge funds, which rose 5 percentage points. 7% of those looking offshore said they are interested in hedge funds to gain global exposure.”
Commenting on this rise, Mr Mowll said, “A number of findings this month confirm that managing volatility is central to investors’ decision making when thinking about global and domestic opportunities. The increased intentions to allocate to hedge funds for global exposure is indicative of this; hedge funds allow investors to benefit from market upswings but protect on the downside, helping investors manage the volatility in their portfolios – which is a commonly cited concern each month in the Report.
“In fact, the findings from the CGIII Report on the appeal of hedge funds are congruous with the trend we’re seeing in the Certitude business. The LHP Global Long/Short Fund experienced one of the highest months ever in terms of inflows and this has largely been related to its low volatility, low beta and consistent performance throughout many market cycles over the past 14 years.
When asked how they plan to obtain international exposure, more investors are looking to actively managed funds (39%) than through directly purchasing shares of global companies (which decreased 4 percentage points to 35%). Mr Mowll commented that the findings indicate investors would prefer to leverage the expertise of a fund manager to make global investment decisions, rather than go it alone.
The most commonly named barriers to investing offshore provide further confirmation that volatility is a central concern of investors. Market volatility was the top barrier to investing overseas (24%), followed closely by investors’ lack of knowledge (22%) and exchange rate volatility (22%).
Regional investments appear to be more popular than a country-specific approach as revealed by trends in the CGIII Report. The US/North America remains the most popular region for investors looking offshore, rising 5 points to 48%. International funds covering multiple regions is the second most popular (stable at 28%), followed by Asia (23%) and Western Europe (22%), which both saw a rise in March. Meanwhile, China declined in popularity by 5 percentage points to 12%
Mr Mowll concluded: “Managing volatility risk will always be a key challenge for investors trying to construct a portfolio suited to their risk profiles. It is promising to see that Australian investors are looking at different ways to diversify their investments and still achieve an appropriate level of risk, bymaking regional investment plays (as opposed to country-specific), looking at actively managed funds, including hedge funds, and weighting portfolios away from a domestic bias.”