The most sophisticated institutional investors are trained to avoid trends or frenzies surrounding a strategy, but human nature dictates that even some will experience a certain fear of missing out when it comes to unique investment opportunities.
Naomi Denning, a principal in the investment consulting practice at Eckler Ltd. says a case of “FOMO” may currently be taking place with the “extreme” concentration risk issues in equity indexes.
“I think the [investment] managers are facing pressure because their style may be to not hold very highly valued stocks, even if they have been going up. . . . Especially in the U.S., it’s been very difficult for them to be overweight in the ‘Magnificent Seven’ because they’re already such a significant portion of the index.”
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The attention those technology giants in the ‘Magnificent Seven’ command is creating tension between managers and investors, she adds.
“It’s tested the resilience of a lot of managers — when they see themselves underperforming because they’re sticking to their process. . . . I’m sure there’s a lot of ‘FOMO’ going on behind the scenes.”
Dustin Reid, vice-president and chief fixed income strategist at Mackenzie Investments, sees the current investing momentum for gold as a moment that will likely make some investors feel like they’ve missed out. The run in the price of the asset, he adds, is something some Canadian investors have probably been chasing.
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“I think watching gold particularly, I would say since August, a lot of people have had that fear of missing out.”
The amount of exposure and pressure that some of the biggest Canadian pension funds face make them a prime example of organizations smaller pension groups can look up to for guidance, Denning says.
The guidance offered by the Maple 8 doesn’t necessarily translates to action by smaller groups since it’s difficult to mimic the investment actions of those larger peers. However, trends can develop that create peer pressure for medium- and small-sized pension funds, she adds.
“The government has been pushing for a bit more disclosure, especially among large plans, so there’s peer pressure there.”
She has recognized an increased interest by pension groups in prioritizing Canadian opportunities without dismissing the importance of diversification.
About three years ago, Reid and his team had conversations around the opportunity attached to cryptocurrencies. The team discussed if they could add the asset and how would they do so, ultimately electing it wasn’t the right fit for their investors.
“Clearly there was a period, a few years ago, where crypto was extremely good and we felt, in a way, we were missing out because we weren’t necessarily adding it. But at the end of the day, we thought it wasn’t necessarily the right thing at that time for our clients.”
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