Equities, reviled since the crash of September 2008 and the first months of the global recession, have made a strong comeback since, according to a new survey from Scorpio Partnership.
By Josh Spero
Equities, reviled since the crash of September 2008 and the first months of the global recession, have made a strong comeback since, according to a new survey from Scorpio Partnership.
The proportion of equities in a balanced portfolio increased by a third from 37 per cent in 1Q09 to 49 per cent in 4Q09, as the stock market rose from 3900 (end 1Q09) to 5400 (end 4Q09) and cheap money from quantitative easing was abundant. There is now $7.1 trillion of exposure to equities from the 33 private banks surveyed.
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Fixed income also increased, but only by 4 per cent from 29 per cent.
Sebastian Dovey, managing partner of Scorpio Partnership, said that this move was essential, given the market conditions, but not necessarily advisable: ‘There is a view that apart from absolutely extreme market conditions (which we had for the first time in a long time around October 2008) being inactive is possibly the worst thing to do. Whether going to equities is a good idea or not is almost impossible to answer.’
The survey found that this rush to equities is likely to continue through 2010, as 42 per cent said that they were thinking of increasing their holding, while a similar number thought that they would decrease fixed income, presumably as interest rates threaten to rise. The hedges of property and cash were likely to hold steady.
The report also showed that use of in-house products almost doubled, from 22 per cent in 1Q09 to 40 per cent in 4Q09, in order to keep money within firms. Some firms advertise the fact that they do not use in-house products as a sign of independence leading to better service and results.
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Sebastian Dovey said that this would not necessarily result in worse service or results for customers: ‘The link between in-house funds and service/returns is often made but not always proven. Sometimes, outsourcing for the sake of it can be counter-intuitive. For instance, if you are the best fixed income manager but you have to put the money into the market to satisfy outsourcing statements this would appear odd to the clients.
‘What we are seeing is that for the beta the firms will look to in-house solutions and they should translate some of the economies of scale to the client (even though they do not always do this) while for the alpha they will continue to seek external solutions.’
Download the press release here
