Financial advisors are more likely to recommend alternative investments in today’s low-interest environment, according to a survey conducted in June by OppenheimerFunds, Inc. The survey looked at the investment challenges and opportunities advisors see when managing portfolios for their increasingly risk adverse clients.
When asked which investments they were most likely to recommend, most answered nontraditional approaches to generating income. Eighty-four percent of advisors are more likely to recommend dividend-paying equities and 76 percent of advisors cited a willingness to recommend emerging market bonds or related bond funds over other asset classes.
“Ongoing market volatility, low U.S. interest rates and the many challenges surrounding retirement, like rising healthcare costs and longer life expectancy, mean advisors are facing significant challenges positioning their clients’ portfolios for long-term success,” said Lori Heinel, OppenheimerFunds’ chief investment strategist. “I believe the traditional asset allocation model will be unable to generate the real returns needed to sustain a quality standard of living. In addition to seeking yield, today’s investors need to look across the globe to find the best opportunities for growth while educating their clients about how certain opportunities can potentially reduce risk in their portfolios, a sentiment we see reflected in our survey data.”
Half of the advisors surveyed felt that the best way to get emerging market equity exposure is through funds investing directly in emerging markets companies. Another 26 percent used funds that invest in companies located in developed countries outside the U.S., and 21 percent prefer investing in large global multi-national U.S. companies. Just 3 percent of those surveyed said they don’t need emerging market equities exposure.
“We believe that emerging economies are the engines for future growth, and portfolios that are positioned to take advantage of that potential growth will likely benefit greatly,” said Heinel. “There are many ways to tap global potential – whether through funds that invest in U.S. companies with significant sales opportunities in new markets or through companies based directly on the ground in countries outside the U.S. – but either way, an advisor that finds portfolio managers with a global mindset and the ability to pick good companies will find potential for greater growth.”
The Eurozone crisis caused 43 percent of respondents to actually reduce their exposure to international bonds and 41 percent reduced exposure to international equities. OppenheimerFunds asked survey participants their opinions about the most important issue affecting financial advice to clients. Fifty-nine percent of advisors cited the ongoing European sovereign debt crisis and 26 percent said the U.S. presidential election.
Compared to the same time period last year, 59 percent of advisors are seeing clients become more risk adverse, with increased interest in fixed income investments. Another 35 percent say risk tolerance levels are similar to what they were a year ago.
Slightly more than half of the advisors surveyed agree that protecting clients from downside risk resulting from continued market volatility is their greatest challenge today. Another 19 and 18 percent, respectively, are challenged by managing clients’ ongoing fears of investing in equity markets and helping clients earn real yield on their fixed income portfolios consistent with their needs.
“Sadly, clients who are sitting on the sidelines are likely to lose wealth when inflation is factored in,” said Heinel. “The key is to get them to think beyond the current headlines. Many investments offer good value to long term investors.”
The OppenheimerFunds Financial Advisor Global Investment Survey was conducted from June 20-21 at the 2012 Morningstar Investment Conference in Chicago. The data is based on 107 respondents.