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European funds taking less risk – State Street

EUROPE – European institutional investors are currently taking less risk in the equities market – instead they are ploughing cash into the fixed income market, according to State Street’s investor confidence index.

The index - which takes a regional view of the risk appetite of institutional investors and has a US dollar base – shows that institutional investors in Europe are taking lower equity risks than their US counterparts.

“This is essentially changing the asset mix of pension fund portfolios,” said State Street’s head of macro strategy Michael Metcalfe.

“Now it seems that investments are moving from equities to fixed income. The European pensions industry as a group is taking less risk,” he told IPE.

According to Metcalfe, the recent short sharp fall in European markets has made investors more hesitant to take risks.

He attributed this fall partly to the German elections. However, he also pinned the maturity of the European institutional investment arena as a key contributing factor in the market being more risk averse.

“But usually after a sharp fall indices tend to stabilise. Sentiment tends to overreact,” said Metcalfe.

The State Street briefing today involved an examination of their most recent investor confidence index measured by the group’s research partnership State Street Associates.

According to the presentation, the index sets a new standard for measuring investor sentiment and risk tolerance.

The actual behaviour of thousands of investors across the world is analysed. State Street Associates believes this provides an accurate litmus test of risk behaviour in the industry.

“We interpret investor confidence as risk tolerance and investors’ willingness to devote a proportion of their portfolios to equities,” said founding partner of FDO Partners and State Street Associates Kenneth Froot.

“The model uses holdings and flow information. It is difficult, if not impossible, to measure risk tolerance from prices,” he added.

In other news, State Street Global Advisors (SSGA) has appointed Joseph Moody as the new head of liability-driven investing of the asset allocation group.

Moody – previously senior investment manager in the fixed income group – will report to CIO for SSGA Europe, Rick Lacaille.

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