The investment world continues to tangle with an environment that is not the norm. Central banks continue to remain cautious and promoting “easy money” policies that entail low interest rates and QE programs, adding liquidity to the markets. Switzerland, for example, has interest rates set at -.75%, Denmark’s interest rate is also at -.75% and Sweden has its interest rates at -.10%, these negative rates make it extremely difficult for investors looking for yield. Equities certainly benefit in this environment, but, according to a Morgan Stanley Global Insight report, asset managers are increasingly turning to multi-asset, alternatives such as real assets and real estate. Morgan Stanley says that the best positioned asset managers for alternatives are Blackstone, KKR and Oaktree. Turning to multi-asset investments, Morgan Stanley sees BlackRock, Schroders, and Henderson Group as the best positioned. Lastly, Morgan Stanley likes WisdomTree for passive strategies.
Investment demand to increase globally for multi-asset and alternatives
In the currently low fixed income and low growth environment, Morgan Stanley analysts see investors, institutional and retail alike, searching for ways to increase their long term returns. Analysts believe that this will fuel a demand for multi-asset and alternative strategies, which are seen rising 225 basis points over the next five years. Under Morgan Stanley’s views, this would give the alternatives a boost to $7 trillion assets under management, showing a 10% compound annual growth rate. If true, this would be a huge source of growth and upside potential for the asset managers above. Morgan Stanley analysts estimate The Blackstone Group L.P. as seeing a potential upside of 22.6% to a target price of $46, KKR & Co. L.P. has an estimated upside of 19.8% to a target of $29, Oaktree Capital Group LLC is estimated at seeing upside of 18.2% to $65, Schroders estimated to see gains of 12.8% to 33.85 British Pounds, analysts see an upside of 11.1% for WisdomTree to $21, BlackRock has upside estimates at 13.1% to $427 and Henderson is estimated to rise 7.4% to 2.80 British Pounds.
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Asset managers: Mutual funds continue to see net money inflows
During the US’s first round of quantitative easing, which began in 2009, net new money growth in US and UK mutual funds doubled from 2-3% to 6-8% a year after QE1 was enacted. Morgan Stanley maintains that the recent unveiling of European quantitative easing will further add demand and continue to push net money inflows into mutual funds and ETFs, which benefits their asset manager picks. The recent inflows into funds allocated in European assets such as equities, bonds, real estate, etc. has already aided in European managers, Henderson and Schroders. Henderson, for example, has seen around $2 billion in net new money so far in 2015 due to the European QE program. Ultimately, with the baby booms and number of retirees globally looking to find yield and returns during this environment, asset managers are moving into alternatives and multi-asset funds to meet the ballooning demand.
Overall, the QE, low inflation and low growth global environment has been a bit of a struggle for retirement investors and all investors alike who must turn to other areas of investments from the traditional income sources that were the norm for so many decades. Morgan Stanley sees asset managers that are focused in alternatives, real assets, multi-assets as being a good bet, due to their sizable inflows of new money. As we continue to see central banks maintain their long term low rate policies, the alternatives asset growth is projected to reach $7 trillion over the next five years, which is fantastic for the asset managers that are uniquely positioned in funds that offer exposure to these assets.