Advisors Say Individual Investors Are Willing to Take on More Risk but Remain Concerned About Volatility
Financial advisors believe traditional diversification and portfolio construction techniques need replacement, and are questioning the relevance of time-honored asset allocation strategies that rely on a 60/40 mix of stocks and bonds and long-term, buy-and-hold approaches, according to a study of 163 U.S.-based advisors released today by Natixis Global Asset Management (NGAM), one of the 15 largest asset managers in the world. Despite continued concerns about market volatility, advisors report an increased appetite for risk by individual investors, and advisors say they increasingly are turning to alternative investment strategies even for clients not considered to be high net worth.
The study, released by NGAM through its Durable Portfolio Construction Research Center, is based on a nationwide survey of 163 advisors at 150 advisory firms that collectively manage approximately $670 billion in assets. The study found:
- Nearly half of advisors (49%) are ambivalent about the benefits of the traditional 60/40 mix of stocks and bonds to achieve performance. Almost twice as many advisors believe that the traditional 60/40 portfolio allocation is no longer the best way to pursue returns and manage investment risk as those who believe it still is (40% vs. 22%). This "out with tradition" approach is shared across advisor classes, including half of advisors with 15 or fewer years of experience and 43% of those with more than 15 years of experience.
- A majority of advisors (63%) do not believe in, or are unsure of the value of, long-term buy-and-hold strategies, and 77% say their clients are questioning this approach as well. Just 38% believe longer holding periods decrease the likelihood of a negative annualized return.
- Nearly twice as many advisors believe that new approaches in asset allocation and portfolio construction are needed, compared to those who favor the status quo (46% vs. 22%).
- Although most advisors (80%) say the majority of their clients are torn between a desire to increase returns and the need to keep their investments safe, half (49%) say a majority of their clients are increasingly willing to take on more risk in search of returns. Fifty-eight percent say clients are beginning to place a higher priority on asset growth over protecting principal. Up to one-third of advisors (33%) say a majority of their clients are eager to make up for past losses, even if it means taking on more risk.
"Our research confirms that financial advisors are questioning the merits of time-honored portfolio construction strategies and looking for new solutions," said John T. Hailer, president and chief executive officer, Natixis Global Asset Management – The Americas & Asia (see related video). "We think that by putting risk first, managing volatility and incorporating alternative investment strategies, investors can both reduce risk and produce the growth that will help allow them to meet their long-term savings goals."
Advisors Turning to Alternatives
Advisors increasingly are interested in adding a mix of alternative investment strategies to client portfolios to manage the impact of market volatility and seek greater diversification. They are doing so not just for high-net-worth clients but also for a broader range of clients, and client asset levels, than ever before.
- A majority of advisors (64%) say they are inclined to employ alternative investment strategies even for their mass-market clients, those with $200,000 to $300,000 in investable assets.
- Half of advisors polled (49%) said they regularly employ alternative investing strategies across their client base, with 79% saying they do so to improve diversification, 68% to reduce risk, 51% to enhance returns, and 42% to dampen volatility.
"Advisors understand the importance of building more durable portfolios that are designed to do well in both up and down markets, and they are tackling the correlation across asset classes by incorporating alternative investments," Hailer said.
- Veteran advisors with more than 15 years in the industry are more cautious about employing alternative strategies than less-seasoned advisors, with 59% of veteran advisors saying they are inclined to recommend alternative strategies for mass market clients, while 76% of less-seasoned advisors would do so.
- For those advisors who don't use alternative investing strategies in their client portfolios, the top reasons for not doing so are: Clients believe fees are too high (20%); clients don't understand how they work (19%); and clients don't believe alternatives should replace traditional investments (19%).
Advisors Express Confidence about Portfolio Positioning
Although 9 in 10 advisors (89%) say they are confident that their clients' current investment portfolios are designed to manage volatility, the same number (89%) recognize that mitigating the impact of market volatility is a "challenge." In fact, 39% of advisors polled say it is a "major challenge."
The Impact of Volatility on Advisors' Own Businesses
Advisors who are adapting to new market conditions and investor expectations are also taking advantage of opportunities to grow their business and achieve competitive differentiation. Almost half of advisors (46%) say market conditions enabled them to boost their business in the past three years, and 54% claim market volatility has enabled them to capture assets their clients previously held elsewhere.
Methodology
The 2012 Natixis Global Asset Management U.S. Advisor study was compiled by the Natixis Global Asset Management Durable Portfolio Construction Research Center based on a survey conducted by CoreData Research in March 2012. CoreData surveyed 163 advisors online after a panel of financial advisors qualified and received an e-mail invitation from the survey firm. Verification for respondent qualification occurred at CoreData. The confidence interval is plus or minus 2%.
About Natixis Global Asset Management, S.A.
Natixis Global Asset Management, S.A. is one of the 15 largest asset managers in the world based on assets under management.1 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates' products around the world. Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies.
Headquartered in Paris and Boston, Natixis Global Asset Management, S.A.'s assets under management totaled $748 billion (€562 billion) as of March 31, 2012. Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A.'s affiliated investment management firms and distribution and service groups include: Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; Natixis Asset Management; Natixis Multimanager; Ossiam; Reich & Tang Asset Management; Snyder Capital Management; and Vaughan Nelson Investment Management.
1Cerulli Quantitative Update: Global Markets 2011, based on December 31, 2010 AUM of $713 billion.
503234
Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50279798&lang=en
Contacts:
Natixis Global Asset Management
Wesley Eberle, 617-827-4229
Global
Public Relations
wesley.eberle@ngam.natixis.com
or
Jeanette
Harrison-Sullivan, 617-449-2549
jeanette.harrison-sullivan@ngam.natixis.com
