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Pension funds are warming to 'smart-beta' investment strategies

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  • Pension funds are warming to 'smart-beta' investment strategies

GLOBAL - Bfinance has predicted an increased focus from pension funds on 'smart-beta' investment strategies, as schemes look for higher returns in core portfolios.

Unveiling the results of its sixth bi-annual pension fund asset allocation survey, bfinance also predicted that the next six months would see an increase in stock investments despite pension funds intending to reduce their equity exposure over the medium term.

Smart beta - which includes fair-value indexing, as well as minimum variance and low-volatility strategies - was currently not part of the investment universe for more than a fifth of the 82 pension schemes surveyed, the consultancy said - with schemes in the Benelux region leading others with their exposure.

However, when asked if their exposure would increase by 2015, a large number of schemes said it would - with the number of funds allocating more than 15% of assets to the strategy rising by 11 percentage points.

For those allocating 11-15% of assets, there was a 13 percentage point increase.

The consultancy's managing director and head of the investment advisory department Olivier Cassin said the shift would occur as investors looked to portfolios to "work harder" while reducing risk.

"In essence," he added, "the debate between traditional index-based solutions within core portfolios versus active management is now out of date, with greater diversification of strategies not simply the preserve of active management.

"In combination with the well-documented wider choice of alternative strategies, there is a greater appetite for institutional investors to seek advisory services as they reduce their reliance on more traditional investment approaches."

The survey also showed that - in line with a diversification away from fixed income, cash holdings and equity - real estate and particularly infrastructure would gain favour.

Tying for most interest, the two real assets were likely to see investments from 36% of pension funds over the next three years, bfinance said, with absolute return strategies coming third, as one-quarter of respondents declared an interest in increasing exposure over the same period.

Only 13% of respondents expected they would be able to return more than 7% in 2012, with around one-quarter predicting their investment income would fall below 5% over the next 12 months.

Additionally, one-fifth of schemes predicted this year's annual return target would fail to satisfy their long-term investment target, with only 15% expecting they would be able to meet such an objective.

 

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