Some 55% of delegates said they would step up their allocation to long/short equities, while none will decrease their allocation. Italian fund selectors seem less concerned by a sudden spike in bond yields, as the majority of them will keep their allocation to alternative fixed income products unchanged.
The Italian interest in long/short equity was encouraging for Chris Kinder, manager of the Threadneedle UK Absolute Alpha Fund, who said the opportunities for long/short investors are now better than they have been for a long time.
“The greatest risk for equity markets is the transition of them being led by money printing to being led by growth. The question is just whether certain asset classes will get valued differently for the next 10 years or so because of the low interest rate environment,” Kinder said.
Eyes on Putin
The crisis situation the Italian fund selectors are anticipating on might well be a further escalation of the conflict between Russia and the West. The majority of attending delegates estimate the tensions will cause significant long-term damage to the European economy, while two thirds even said the breakdown of relations has had a serious impact on their portfolio. As most have kept their allocation to European equities stable, Italian fund selectors have dumped their Russian holdings in great numbers.
Have you reduced your weighting to Russian equities? Was there a significant impact on your portfolio?
Massimo Siano from ETF Securities sided with his compatriots during the concluding panel discussion. “Everybody laughed at Mitt Romney when he said the major risk to global growth is Vladimir Putin, but I think he was right. Putin is the reason some investors keep holding gold now.”
A risky world
Roger Douglas, head of fixed income portfolio management for Deutsche Bank in London, and Threadneedle’s Kinder agreed with Putin posing a significant risk. “But the conflict with Russia is just one factor that might contribute to a change in the investment environment”, Douglas said.
Other downside risks are to be found in China and Europe. “I see the most important macro risk in China”, said Skander Chabbi, convertible bond manager for BNP Paribas IP. “We might well see some serious dents on the real estate market in China in October. This would have a far greater impact on developed equity markets than anything that has happened with Russia.”
A third major risk out there is the European banking system, according to Kinder. “The European banking system has not been adequately recapitalised, and banks are not providing credit to mid- and small cap companies,” he said. “But the critical part is loss recognition [banks cleaning up their balance sheets], which hasn’t really happened in Europe. The ECB is doing a lot, but I doubt they will be successful without this.”
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