Financial advisors in the United States are increasingly questioning traditional portfolio construction principles, and looking for alternative approaches, a new survey finds.
The research, published by Paris and Boston-based Natixis Global Asset Management, finds that financial advisors believe traditional diversification and portfolio construction techniques need to be replaced, and they are questioning the relevance of asset allocation strategies that rely on a 60/40 mix of stocks and bonds and long-term, and buy-and-hold approaches.
The study, which is based on a survey of 163 advisors at 150 advisory firms that collectively manage approximately $670 billion in assets, found: that 40% of advisors believe that the traditional 60/40 portfolio allocation is no longer the best way to pursue returns and manage investment risk, versus 22% who believe it still is; 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; 46% believe that new approaches in asset allocation and portfolio construction are needed, compared to 22% who prefer the status quo.
The study also found that while 80% of advisors say the majority of their clients are torn between a desire to increase returns and the need to keep their investments safe, 49% say a majority of their clients are increasingly willing to take on more risk in search of returns. And, 58% say clients are beginning to place a higher priority on asset growth over protecting principal; 33% say a majority of their clients are eager to make up for past losses, even if it means taking on more risk.
Additionally, Natixis reports that its research found that advisors are increasingly interested in utilizing alternative investment strategies to manage the impact of market volatility and seek greater diversification. And, it says they are doing this not just for high-net-worth clients, but for a broader range of clients, and client asset levels.
It reports that 49% of advisors 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. And, 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.
Veteran advisors are more cautious about employing alternative strategies than less-seasoned advisors, it notes, with 59% of veteran advisors (those with at east 15 years in the business) saying they are inclined to recommend alternative strategies for mass market clients, while 76% of less-seasoned advisors would do so.
Finally, almost half of advisors (46%) say the volatile market conditions in recent years have 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.