Traditional diversification and portfolio construction strategies need a makeover, according to a new survey of 163 U.S.-based financial advisors.
Natixis Global Asset Management also found that advisors are questioning the relevance of asset allocation strategies that rely on a 60/40 mix of stocks and bonds and long-term, buy-and-hold approaches.
Investment advisors interviewed for the survey said they increasingly are turning to alternative investment strategies even for clients who aren’t considered high net worth. Half of advisors polled said they regularly employ alternative investing strategies across their client base, with 79 percent saying they do so to improve diversification, 68 percent to reduce risk, 51 percent to enhance returns, and 42 percent to dampen volatility.
The study, which was produced through NGAM’s Durable Portfolio Construction Research Center, found that nearly half of advisors are ambivalent about the benefits of the traditional 60/40 mix of stocks and bonds to achieve performance. Forty percent of advisors believe the traditional portfolio allocation is no longer the best way to pursue returns and manage investment risk compared to 22 percent who do.
A majority of advisors, 63 percent, do not believe in the long-term buy-and-hold strategies, and 77 percent say their clients are questioning this approach as well. Only 38 percent felt that longer holding periods decrease the likelihood of a negative annualized return.
Forty-six percent of advisors believe that new approaches in asset allocation and portfolio construction are needed, compared to 22 percent of those who favor the status quo.
Eighty percent of advisors said their clients are torn between wanting to increase their returns and keep their investments safe. Nearly half said that 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.
Advisors with more than 15 years of experience in the industry are more cautious about deploying alternative investments than less-seasoned advisors, with 59 percent of veterans saying they are inclined to recommend alternative strategies for mass market clients, while 76 percent of less-seasoned advisors would do so.
The biggest reasons cited for not implementing alternative investing strategies is that clients believe the fees are too high, they don’t understand how they work or they don’t believe alternatives should replace traditional investments.
The 2012 Natixis Global Asset Management U.S. Advisor study was based on a survey conducted by CoreData Research in March 2012.