Most-discussed was the commission ban on asset management products, scheduled for implementation at the start of 2014. The reform, which follows similar measures in Australia and the UK, is expected to have far-reaching effects.
One fund selector at a major Dutch bank forecast that retail investors will move in two directions – towards execution-only platforms or ‘managed solutions’. The latter will become increasingly popular, he predicted, as solutions managers gather scale and employ their bargaining power to negotiate favourable rates with fund managers, thereby driving down costs for their end clients.
Other interviewees – most of whom select funds for banks, family offices, platforms and pension schemes – will be affected by the reform to varying degrees. Many reported that the back-office changes required to comply with the new regime are costly and time-consuming to implement, prompting some to speculate that the Dutch government may face pressure to postpone the ban.
Macroeconomic outlook
Upbeat stance masks domestic woe
The Dutch economy has been in recession since Q4 2012, as indebted households continue to struggle in the aftermath of a deflated property bubble. Confidence, spending and unemployment have all been heading in undesirable directions, with economists warning that the country’s AAA debt rating could come under threat as public debt approaches 80% of GDP.
But while the grim domestic picture is reflected in the outlooks of some fund selectors – one of whom said he saw “no bright spots in Western Europe” – most of our interviewees were upbeat. Indeed, the proportion of investors with a positive macroeconomic view was significantly higher than at the Expert Investor Netherlands conference in September 2012 (see chart 1).
European equities
Strong appetite for continental exposure
In line with their broadly upbeat stance, Dutch fund selectors have a strong appetite for equities – and developed European stocks in particular. Two-thirds of our interviewees planned to increase their European equity exposure over the following 12 months, marking a significant strengthening of demand for the asset class since last year’s Expert Investor Netherlands (see chart 2).
Most fund selectors were upbeat on signs of economic recovery in Europe – a view supported by the subsequent publication of data showing that the eurozone exited recession in Q2 – and considered the region’s equities attractively-valued, following the correction in June.
US stocks
Demand has moderated since 2012
Investors were similarly positive on the US, and confident that the country’s debt levels will remain manageable as its economy continues to grow. Nevertheless, none of our interviewees planned to increase their US equity allocations – in contrast with strong appetite for the asset class last September (see chart 3). Some viewed US small- and mid-cap stocks as attractively-priced.
Emerging market equities
Interviewees focus on the long-term
Appetite for developing world stocks was flat, with a third expecting to bolster their allocations and the same proportion planning to lower them (see chart 4).
However, interviewees said they were unlikely to make significant changes to their weightings, despite the sell-off in emerging market assets earlier this year. Many remained upbeat on the long-term outlook for China, and encouraged by signs that the country is reducing its dependence on exports.
There was also interest in less-developed ‘frontier markets’, particularly those in Africa, which fund selectors said offered significant opportunities on a 10-year investment horizon. However, they preferred to outsource such higher-risk allocation calls to global emerging market fund managers.
Fixed income
Demand for bonds has reversed
At the 2012 Expert Investor Netherlands conference, investors expected in aggregate to boost their exposure across the major fixed income categories over the following 12 months – with the biggest increases planned in lower-rated areas such as Western high yield, and emerging market sovereign and corporate debt. Indeed, appetite for EM credit was greater than for any other asset class.
That demand evaporated over the past year, and only emerging market corporate bond strategies are likely to escape outflows from Dutch fund selectors over the next 12 months (see charts 5, 6, 7 and 8). The prevailing view was that equities offered more attractive opportunities.
Active vs passive
Smart beta focus for pension funds
Dutch pension fund managers are enthusiastic about passive investment, with firms such as APG and PGGM running about half their equity portfolios in smart beta strategies. The trend shows little sign of slowing.
One interviewee, responsible for running a pension equities pot worth several billion euros, began using smart beta in 2011, to reduce overall portfolio volatility. The allocation has since risen to 15%, and is likely to grow to 20% over the next year. Such passive strategies are used in the portfolio alongside traditional funds run by ‘highly-active’ managers who are not constrained by their benchmarks.
Platforms also reported increasing levels of appetite for passive strategies from their clients, even in areas such as EM equities.
Ilyes Bdioui and Will Jackson, members of EIE’s research team, collected the information in this document through a series of interviews with senior fund selectors and asset allocators, plus publicly sourced data. For more information, contact Ilyes at ilyes.bdioui@lastwordmedia.com or on +44 (0)20 7382 4470. Click here to see upcoming Expert Investor Europe events in the Netherlands.
