Before the worst of the market carnage was unleashed in mid-March, institutional equity managers were already experiencing some of the worst outflows in years.
According to eVestment’s first institutional intelligence report, published on Monday, the largest outflows came from active U.S. and global equity strategies, while investors were shifting into cash management and fixed-income funds.
“This is a picture of the themes that were emerging right before the world changed,” said Peter Laurelli, head of research, in an interview.
“The main driver of institutional flow in the current quarter was again a push into U.S. cash management strategies, with interests in U.S. fixed income being the next biggest influence to the upside,” according to eVestment’s report. The firm, which tracks consultants’ and investors’ views of the different product profiles in its system, reported that there was rising interest by U.S. consultants in domestic fixed income, including multi-sector fixed income.
In contrast, investors themselves were particularly interested in global equity.
“Contrary to U.S. consultants, U.S. investors, while viewing U.S. large cap strategies most, showed the broadest interest in global equity strategies, which also attracted the most new attention from within the U.S.,” according to eVestment. That’s not surprising, given the long outperformance of U.S. equities, and recent advice to diversify internationally.
Laurelli explained that investors had been moving out of equities and into fixed income all year, but the fourth quarter was the most dramatic. Most of the movement was due to rebalancing, given the huge run-up in equity markets until recently. He said that the shifts protected investors from some of the recent market declines, but not nearly enough to make a dent in the big losses suffered.
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The firm also found that investors moved into cash management products. That’s a shift that Laurelli attributed in part to U.S. and U.K. public plans moving from public equities to private market strategies. Money markets can be used as a parking space during these transitions.
Although more recent data is not yet available, Laurelli said he has seen a mid-March rise in the number of consultants and investors viewing intermediate-duration fixed income strategies. Clearly, investors are trying to limit damage by moving money into more conservative investments, he believes.
The research firm also found that U.S. investors were the drivers of many of the negative trends.
“In a lot of cases, it was a diverse set of regional viewers who were driving the positive themes, but when it came to negative themes, it was U.S. centric. The U.S. is the leader when it comes to most of the redemption pressures,” said Laurelli. Categories experiencing outflows included U.S. small-cap, EAFE (Europe Asia Far East) large cap core, and EAFE small-cap.