This year\u2019s study was conducted face-to-face amongst 139 individual sovereign investors
\nand central bank reserve managers across the globe representing $20.3trillion[[Sourced by NMG Consulting: total assets of those sampled stands at $17 trillion as at year end 2017.]] of assets, of which 71 are central banks (62 in 2018), reflecting their growing status as
\nsovereign investors.<\/p>\n
Fixed income displaces equities as largest asset class for sovereigns<\/strong><\/p>\n 2018 was a challenging year for sovereigns as weak and volatile equity markets led to a The majority of sovereigns (89%) anticipate the end of the economic cycle within the Fixed income allocations increased to 33% in 2019 from 30% in 2018, becoming Challenging equity markets in 2018 highlighted the limitations of market-cap weighted Sovereigns optimistic on China<\/strong><\/p>\n China\u2019s attractiveness rating for sovereign investors has improved more than any other Despite the fact that the study was carried out during a period of ongoing rhetoric on a The unique competitive dynamics of China are appealing for sovereigns seeking more Investors don\u2019t see economic attractiveness in Europe<\/strong><\/p>\n A combination of slowing economic growth and perceptions of rising political risk have While Renminbi finds a bigger place in Central Banks reserve portfolios<\/strong><\/p>\n As a group, Central Banks believe the end of the economic cycle will be characterised by Central banks bought 651.5 tonnes of gold in 2018, the second highest annual total on Central Banks continue to diversify away from the negative yields of government bonds Environmental considerations move ESG firmly into the spotlight<\/strong><\/p>\n ESG is an increasingly important issue for sovereigns and Central Banks. Since 2017, the There has also been a shift in focus of the nature of ESG activity. While asset owners Alex Millar, Head of EMEA Institutional Distribution Sales, Invesco, commented: Invesco released its seventh Invesco Global Sovereign Asset Management
\ndecline in overall investment returns. On average, sovereign investors achieved returns
\nof 4% in 2018 compared to 9% in 2017. Despite the decrease in returns, sovereigns
\nperformed well given negative returns from global equities, which fell 8.7% in US dollar
\nterms during the year, according to MSCI World Index***.<\/p>\n
\nnext two years. This combined with volatility concerns and the prospect of negative
\nreturns from equities has led to increased fixed income allocations and more
\ndiversification in allocations to infrastructure, real estate and private equity markets.<\/p>\n
\nsovereigns\u2019 largest asset class. Meanwhile, allocations to equities fell from 33% to 30%,
\nmarking the end of a five-year trend between 2013 and 2018 during which fixed income
\nfell from 35% to 30% as equities posted strong gains.<\/p>\n
\npassive strategies, as well as some more basic factor strategies. Some of the most
\npopular factor strategies, e.g. value and momentum, performed below sovereign
\nexpectations during 2018, and some of those adopting a simple \u2018set and forget\u2019 approach
\nto their factor allocations reported negative returns. This is encouraging a move away
\nfrom a single-factor approach towards multi-factor positions that can better adapt to
\nchanging market conditions.<\/p>\n
\nmajor region since 2017. Some 82% of sovereigns cited trade tensions as having had an
\ninfluence on asset allocation decisions, yet China\u2019s attractiveness as an investment
\ndestination over the next three years scored an average rating of 6.1 out of 10 among
\nsovereign investors, a marked increase on 2017\u2019s 5.2 rating.<\/p>\n
\ntrade war, those surveyed saw China\u2019s pledge to improve safeguarding of intellectual
\nproperty as grounds for optimism that some resolution of tensions would be reached.<\/p>\n
\ndiversification, the survey found, with equities continuing to be the asset class most
\nfavoured. Approximately 90% of sovereigns with China exposure held Chinese equities,
\nshowing that the government\u2019s measures to open the market to foreign investors are
\nbearing fruit. Fixed income allocations are also likely to increase with Chinas inclusion in
\nmajor bond indices and initiatives, such as Bond Connect, giving foreign investors access
\nto the local bond market. Transparency remains a significant obstacle to higher
\nallocations in China for sovereigns, while for those sovereigns with no existing allocation
\nto China, investment restrictions and currency risk are seen as the main impediments.<\/p>\n
\nled to a decline in the perceived attractiveness of major European economies. Brexit is
\nnow influencing asset allocation decisions for 64% of sovereigns. <\/p>\n
\ncontinental Eurozone internal politics, seen as increasingly uncertain with the
\nascendance of populist movements in major European economies such as Germany and
\nItaly, is impacting asset allocation decisions for 46%. This has resulted in Europe falling
\nout of favour, with nearly one third of sovereign investors decreasing allocations to
\nEurope in 2018 and a similar number planning further decreases in 2019. Only 13% of
\nsovereigns plan on increasing allocations to Europe this year, compared to a 40%
\nallocation to Asia and 36% to Emerging Markets.<\/p>\n
\na gradual slowdown, rather than an economic crisis. However, the uncertain market
\nenvironment, combined with an increasingly hawkish Federal Reserve, led many of them
\nto find perceived safety in increased allocations to deposits, and, in some cases, gold.<\/p>\n
\nrecord and up 74% from the year earlier12
\n. Over a third (35%) of central banks increased
\nallocations over the last three years, with 32% expecting further increases over the next three years, but overall gold holdings remain steady at around 4% of overall reserve
\nportfolios. Respondents to the study reported additional challenges associated with gold
\nas a reserve asset, including volatility, storage costs and the political implications of
\nselling. 75% of Central Banks agreed or strongly agreed that selling gold holdings would
\nattract negative domestic media coverage in their country. <\/p>\n
\n(especially in Europe) into bank deposits; and away from the US dollar. The main
\nbeneficiary has been the Renminbi and between 2017-18, allocations to China\u2019s currency
\novertook the Australian and Canadian dollar, with 43% of central banks now holding it in
\ntheir portfolios, compared to 40% in 2018. Over a quarter (27%) of central banks expect
\nto continue to increase Renminbi reserves in 2019, making it the most favoured currency
\nfor the year ahead, with increased allocations expected to be taken from the USD, EUR
\nand GBP. Though USD remains the dominant reserve currency, allocations reached a 5-
\nyear low, falling from 62.7% of global currency reserves to 61.7%.<\/p>\n
\npercentage of sovereigns with a specific ESG policy rose from 46% to 60%.
\n20% of Central Banks now have an ESG policy, compared to 11% in 2017. Approaches
\nto ESG are increasingly sophisticated, having moved beyond screening to incorporate
\nmore advanced forms of integration.<\/p>\n
\nhave, in the past, focused on issues of governance due to clearer risk and return
\nbenefits, these factors are now often assumed by ESG adopters. For sovereigns,
\nenvironmental concerns are increasingly becoming the lead focus, with carbon emissions
\nand climate change the single most important ESG issue.<\/p>\n
\n\u201cOur wide-ranging study reveals that sovereigns and Central Banks are adopting defend
\nand diversify investment strategies. The combination of a likely end-of-cycle within two
\nyears and an uncertain global environment has led to allocations to fixed income, private
\nmarkets, and emerging markets growing in portfolios. Political uncertainty and lack of
\neconomic attractiveness has seen a shift of allocations away from Europe, pivoting
\ntowards China, despite some concerns at continuing trade wars. While central banks
\nhave maintained their commitment to alternative assets, there have been significant
\nchanges in their lower risk assets, moving from government bonds towards deposits and
\nin some cases gold, and from the US dollar to Renminbi.\u201d<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"
\nStudy[[This is Invesco\u2019s seventh sovereign asset management study. In 2019 we conducted
\ninterviews with 139 funds: 68 sovereign investors and 71 central banks. The 2019
\nsovereign sample is split into three core segmentation parameters (sovereign investor
\nsegment, region and size of assets under management). The 2019 central banks sample
\nis broken down by developed vs emerging market.]], an annual in-depth report on the complex investment behaviour of sovereign wealth funds and central banks, which this year shows disenchantment with Europe among sovereign investors.<\/p>\n","protected":false},"author":20,"featured_media":81112,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1481],"tags":[1809,1655,1657,1651,1437,1724,2091],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/81114"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=81114"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/81114\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/81112"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=81114"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=81114"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=81114"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}