German institutions looking to increase fixed income risk – Feri
One-third of German institutional investors are still planning to re-allocate their fixed income portfolios, according to a survey by Feri.
It said one-third of respondents had already done so and that the remaining investors had no plans to change their allocations.
Half of those planning changes want to increase their exposure to corporates in developed markets, while another one-third is looking into emerging market corporates.
Feri said high yield was a preferred strategy for increasing risk in the fixed income portfolios for many investors.
Currently, the allocation of high-yield fixed-income instruments is at 2%.
Investors aim to increase this to 2.5% by 2018, Feri said.
According to the survey, pension funds and church investors are the only two institutional groups in Germany seeking to decrease their exposure to these instruments, albeit slightly.
Pension providers currently have a 3% exposure to high-yield instruments and want to bring this down to 2.7%.
Between 2013 and 2015, the share of corporates in German institutional portfolios increased by 500 basis points to just over 18%, according to Feri statistics.
This is the highest increase for any asset class, as the share of equities went up by just 50bps – to 6.3% – while that of real estate increased by 30bps to 6.4%.
Apart from possible changes to their fixed income portfolios, respondents to Feri’s survey are weighing increased exposure to various alternatives.
Private equity is set to be increased by almost 600bps (currently, the exposure is only shown in the ‘other’ category at 2%), commodities by 560bps (currently 0.03%) and real estate by 540bps.
By comparison, the share of equities is expected to rise by 310bps through portfolio re-allocation.
The overall increase in the exposure to corporates, including those investors not planning further changes or any changes, is only 170bps.
For their re-allocations, German investors are increasingly looking to passive strategies, including ETFs, according to Feri.
But the majority of investors are holding ETFs for less than two years in their portfolios.
With asset classes such as real estate, external asset management has become increasingly important.
In 2009, only 30% of the surveyed investors used an external manager for their property portfolio; by 2015, this share had increased to 50%.
Overall, Feri surveyed 128 institutional investors (40% pension providers), with combined assets worth €720bn – of which €140bn is managed externally.