• Regulatory updates from the NAIC, EIOPA, SEC, and other regulators relevant to investment accounting.
  • Best practices and other considerations relating to investment data operations, based on Clearwater’s extensive experience and client base.
  • News and other updates on the latest innovations in the financial technology sector.
  • Information about, and dispatches from, the most important industry events for institutional investors across the globe.
  • All about Clearwater: what is our company up to, and how can you best engage with our community of users.
3 MIN READ
MARKET INSIGHTS    MARKET RESEARCH

Market Analysis: Institutional Investing During Q1 2020

Market Analysis: Institutional Investing During Q1 2020

MARKET INSIGHTSMARKET RESEARCH

Markets worldwide experienced significant stress and volatility during the first quarter of 2020 as the implications of Covid-19 became clearer. Clearwater has over 750 institutional clients globally using its system to monitor over $4 trillion in assets representing almost every type of public and private investment; few databases offer better insight into the broad trends among institution investment managers during the first quarter as they adapted to the drastically deteriorating economic environment.  

Between January 31 and April 2, the Atlanta Federal Reserve’s GDPNow forecast of Real GDP for the first quarter of 2020 declined from +2.7% to 1.3%, a 52% reduction. Eventually the final GDPNow estimate for first quarter GDP settled in at -1.0%. Credit spreads deteriorated rapidly and U.S. Treasury yields decreased significantly as investors sought safe haven. One-year U.S. Treasury yields decreased 139bps or 89%.

Source: U.S. Treasury

                                        Source: U.S. Treasury

​Source: Bloomberg-Barclays Index

                                        Source: Bloomberg-Barclays Index

Investors had to find liquidity and reconfigure portfolios for the rapidly changing economic reality. Clearwater’s system successfully processed a steep increase in transaction activity.

Source: Clearwater Analytics

Source: Clearwater Analytics

Top and bottom quartiles


The new economic outlook had a profound and substantive effect on portfolio  valuations on the Clearwater system.

  • The average portfolio saw valuation decrease by 6%
  • The top quartile saw a change in portfolio value between +1% and -4%
  • Those in the bottom quartile saw portfolio values drop between -9%  and -16%

Investors responded to the market stress by increasing liquidity.

​Source: Clearwater Analytics

Source: Clearwater Analytics

Within fixed income portfolios, investors seemed to endorse an outlook for continued low rates as exposure to fixed coupon securities remained elevated.

​Source: Clearwater Analytics

Source: Clearwater Analytics

Exposure to the intermediate range five-year key rate duration increased while allocation to cash increased along with fixed rate coupon exposures. This implies that investors were attempting position fixed income portfolios in a barbell type allocation within short to intermediate tenors.

​Source: Clearwater Analytics

Source: Clearwater Analytics

The average duration of fixed income securities on Clearwater’s system decreased from 1.04 years to 0.86 years or only about 6%, but booked investment yields decreased 37% from 2.00% to 1.25%. 1-year U.S.

​Source: Clearwater Analytics

Source: Clearwater Analytics

Analysis of changes in fixed income investment characteristics on the Clearwater system since the beginning of 2020 crystalizes several themes. First, there is no magic bullet and as overall market yields declined, client yields declined too. Second, investors increased allocation to cash while also increasing exposure to longer intermediate-range key rate durations in the remaining portion of the portfolio. This seems to indicate that many investors engaged in greater barbelling attempting to attain yield while reducing exposure to volatility.

Our website uses cookies and forms for collecting data about our visitors and registered users. By clicking 'Agree and Close' you confirm that you have reviewed our Privacy Policy, and consent to the terms described.