Sovereign wealth funds (SWFs) are shifting allocations away from Brazil, Russia and China and increasingly adding exposure to the US, emerging Asia and others parts of Africa.

Invesco’s annual study of SWFs and central banks globally shows the attractiveness of three of BRIC countries is waning, with India the only bright spot.

Manufacturing capability, political stability, and the quality of infrastructure are cited as key factors for adding exposure to new markets.

Investments range from products such as conventional equity, fixed income products and direct investments into alternatives such as real estate.

Funds also remain bullish on future opportunities in the US, and in US infrastructure in particular.

“Sovereign investors are now less willing to overlook political and regulatory concerns in these regions in order to hit target allocations,” said Alex Millar, head of EMEA sovereigns, Middle East and Africa institutional sales at Invesco.

“Sovereign investors note a struggle with commodity prices and falling stock markets for large export markets like Brazil and Russia, while the shrinking labour force in China is driving up manufacturing costs and squeezing private sector margins.”

Last month a Vanguard report suggested the BRICS countries, which include South Africa, are at middling stages of development, with all of the accompanying stresses.

“All of the BRICS are experiencing demographic challenges,” said Jonathan Lemco, a senior analyst at Vanguard.

"All are witnessing slowing economic growth and rapidly increasing economic inequality. All need far more private sector investment. All require more respect for property rights and the rule of law.

“The commodity producers are seeing plummeting prices for oil, copper, and other commodities, and world trade is not nearly as robust as it was in 2010. Perhaps most important in 2016, all of the BRICS have growing public and private sector debt burdens, forcing higher borrowing costs.”

Invesco’s study also noted that despite sustained low oil price and falling government bond yields have affected returns but sovereigns remain confident and continue to take a long-term view.

Fewer execution challenges have made real estate a more attractive asset class to sovereign investors than infrastructure and private equity.

There is also a growing interest from sovereigns in factor-based investing, although the most commonly cited barrier by 72% of sovereigns is a lack of in-house expertise and understanding of factor-based investing.

“This presents an opportunity for the asset management industry to help sovereigns understand factor-based investing and support the implementation of factor strategies,” adds Millar.