Equities back in favour for sovereign investors in third quarter

Sovereign wealth funds regained their appetite for equities in the third quarter, piling into passively managed stocks in the United States and equities in mainland China and elsewhere, according to eVestment data.

Passively managed S&P 500 funds - those that buy a basket of S&P 500 stocks and hold them rather than trading day to day - took in $1.09 billion from sovereign investors during the period, the first net inflow since the fourth quarter of 2016, after significant outflows in recent years.

In another sign of renewed interest in equities, sovereign investor inflows to global enhanced equity funds - which are actively managed - reached $1.05 billion, their largest since the fourth quarter of 2017.

"This is an indication that SWFs (sovereign wealth funds) have slowly seen their sentiment change in the near term to global equities, both to active and passive strategies, as they had been removing assets at an elevated rate in the three quarters prior to Q2 2019," said Peter Laurelli, global head of research at eVestment, which collates data from firms managing money on behalf of institutional investors.

US stocks have reached record highs as hopes have risen of a breakthrough in the US-China trade discussions. At the same time, fears of a US recession have eased, helping support forecasts for corporate earnings.

J.P. Morgan Asset Management this week raised its outlook on global stocks, while UBS moved its overall position on equities to neutral. Allocations by sovereign investors to onshore Chinese stocks, or A shares, rose to a record level, with inflows of $1.12 billion during the quarter.