Fund managers are making significant changes to portfolio construction in response to ongoing market volatility and geopolitical uncertainty, according to new research from Clearwater Analytics.
The study, based on a survey of 250 senior executives at asset management firms across the US, Europe and Asia-Pacific, suggests traditional asset allocation approaches are giving way to more flexible portfolio structures, greater use of alternatives and more frequent portfolio adjustments.
One of the clearest trends identified is the growing adoption of core-satellite portfolio construction. Clearwater found that 76% of fund managers believe advanced portfolio management systems have had a significant influence on their ability to implement core-satellite strategies, while 75% said integrated data analytics tools are essential for real-time performance monitoring and attribution.
The research also points to continued growth in alternative assets. More than 90% of respondents expect allocations to private equity, private credit, infrastructure and hedge funds to increase over the next three years as managers seek additional sources of return and diversification.
However, the shift is also creating new considerations around liquidity management, particularly where portfolios combine public and private market exposures.
The survey found geopolitical and macroeconomic risks are also driving greater use of portfolio hedging. More than half (55%) of firms have increased their use of hedging strategies over the past year, while 79% expect usage to rise further over the next two years.
Away from asset allocation, the research highlights a broader shift in regional preferences. More than two-thirds (69%) of managers expect increased allocations to European equities and thematic investment opportunities over the next 24 months, indicating a move away from a long-standing concentration in US markets.
The study also suggests sustainability considerations continue to influence investment decisions. Fund managers expect portfolio decarbonisation and sustainability-focused investment strategies to progress at different rates globally, with Europe expected to remain at the forefront of the trend.
Another notable finding is the growing move away from periodic portfolio reviews towards more dynamic portfolio management. The research suggests managers are increasingly using technology to support more frequent rebalancing and tactical adjustments.
Nearly nine in 10 (89%) respondents said they had increased trading activity and adapted portfolio construction during the past year in response to changing market conditions.
Keith Viverito, managing director, EMEA, at Clearwater Analytics, said the research suggested many firms were responding to market conditions in similar ways.
“What stands out in this data is how many firms are making similar moves. That’s worth watching, because a strategy the whole market adopts together behaves differently than one only a few firms hold.”
The study also highlighted the challenge of balancing short-term market responses with longer-term investment objectives. More than half (53%) of managers said market volatility was making it difficult to maintain their long-term strategic asset allocations and investment goals.
Commenting on the findings, Viverito said: “Fund managers are confident in their goal-oriented strategies, yet more than half are struggling to execute their long-term visions because they are constantly forced to react to short-term volatility.
“That gap between conviction and execution is where the real risk sits. The firms that manage it best will be the ones who can tell, in the moment, whether a tactical trade serves the long-term strategy or works against it.”
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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