Risk appetite falls as reality of Brexit sets in for investors

Investors are minimising their risk profiles in the wake of major uncertainty in global markets in recent months, according to the findings of the latest Risk Rotation Index by NN Investment Partners1, which was conducted in August 2016, two months after the British EU referendum result.

Nearly a third (30%) of professional institutional investors claimed that their appetite for investment risk had diminished during the previous six months, with one in 12 (8%) stating that it had decreased “significantly”. This is compared to 23% who stated that their appetite had increased over the previous six months and 47% who had maintained their position.

This is almost a direct inverse result of the previous study, in which 29% of investors stated that their risk appetite had increased and 23% had said their appetite had decreased, and means that overall risk has fallen into negative territory for the first time since October 2014, when it fell just below zero to -0.6%.

Risk Rotation

Patrick Moonen, Senior Strategist Multi-Asset at NN Investment Partners, says: “Markets are currently facing several headwinds, with a number of different geopolitical tensions affecting investors’ confidence for the future. As we enter this period of uncertainty it is more important than ever for investors to be able to highlight pockets of opportunity so as to capitalise on the existing market uncertainty.”

When asked about the most significant threats to their portfolios, investors roundly named Brexit as their biggest concern. Nearly a third (32%) cited it as “very significant”, with 18% describing it as “slightly significant”, meaning that overall half of all investors viewed it as a concern for their investment strategy.

A Eurozone crisis was cited as the second-biggest threat, selected as significant by 41% of investors, followed by a black swan event (30%) and an Emerging Markets crisis (24%).


Patrick Moonen continues: “With the ramifications of Brexit set to continue for the foreseeable future, it is clear that more and more investors are adjusting their risk profile to protect their investments from market volatility resulting from these developments. The research also reveals that those who have a more negative outlook on the impact of Brexit are also more likely to have decreased their risk portfolio, with half of respondents who viewed Brexit as a ‘very significant’ risk also stating that they had decreased their exposure to risk.”

When asked about the most attractive geographical markets in terms of risk versus return over the coming six months investors ranked Emerging Markets most highly, with 29% viewing it as the most attractive region. This was followed by the US (25%), the UK (12%) and the Eurozone (8%).

1. Findings revealed in NN Investment Partners’ own research carried out in a survey by Citigate Dewe Rogerson amongst 86 international institutional investors in July and August 2016

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