Appetite for higher-risk multi-asset funds has increased noticeably, in spite of managers upping their cash weightings and becoming more cautious.
Fund-of-fund managers have reported a rise in inflows into their higher-risk funds so far in 2014, as climbing asset prices potentially lull investors into a false sense of security about the trajectory of markets.
At the same time, multi-managers, and the managers of some of the underlying funds, are moving to a more defensive position in anticipation of a correction, or at least a pause, in markets.
John Ventre, head of multi-manager at Old Mutual Global Investors and lead manager on its risk-rated Spectrum range, said the most popular funds used to be grades 4 and 5, but now the most money was going into 5 and 6, with more money than before flowing into the more aggressive funds as well.
But the increase in risk appetite from investors comes just at the time when many of the managers within the Spectrum funds have built up cash positions in anticipation of a fall in markets.
The S&P 500 index has hit a number of record highs so far in 2014, while the FTSE 100 index has also neared its record. Elsewhere, bond yields across the risk spectrum are near record lows.
François Zagamé, Mr Ventre’s number two on the Spectrum funds, said a lot of the “opportunistic managers are all sitting on cash, looking for some sort of fall” in markets.
Risk-rated fund managers at Aviva Investors, Rathbones, Standard Life Investments (SLI) and Henderson Global Investors also said they had been seeing an increase in investor risk appetite, with more money flowing into their riskier funds.
Aviva Investors’ Nick Samouilhan said that, within the risk-rated funds he co-manages with Peter Fitzgerald, “there has been a marginal move up and there are more people investing in the higher-risk fund”.
Mr Samouilhan admitted that this shift was “not what you would want to see”.
He explained the purpose of the funds was to match a vehicle to an investor’s long-term risk tolerance, which shouldn’t vary just because markets have performed well.
And the manager said he had been increasing the level of cash in his funds after completely selling out of high yield and halving his corporate bond weightings, using some of the money to add to property while holding the rest in cash.
The Aviva team is not alone in holding cash, with Schroders’ Marcus Brookes having recently hiked the cash weighting in his £1.4bn Schroder MM Diversity fund up to 32.8 per cent in anticipation of a correction.
Greg Mullins, director of sales at Rathbone Unit Trust Management, said the move “highlights one of the issues with risk profiling: it can be impacted by short-term newsflow and experience”.
Meanwhile, Brian Strachan, multi-asset investment specialist at SLI, said the firm had “picked up on a modest shift away from lower risk towards our higher-risk portfolios in the past three to six months”.