BOSTON--(BUSINESS WIRE)--More than three-quarters of investors agree that index funds and exchange-traded funds (ETFs) are a cheaper way to invest, but 71% also believe they are less risky, according to new research published today by Natixis Global Asset Management. The findings suggest that many investors have expectations that don’t reflect a full understanding of the risks of index funds versus the benefits.
Natixis commissioned an independent survey of 750 individual investors in the U.S., from the affluent to the high net worth. It found that:
- 64% of investors think using index funds will help minimize investment losses
- 69% believe index funds offer better diversification
- 61% believe index funds provide access to the best investment opportunities in the market
However, investors expecting lower risk may have been surprised at the start of 2016 when the Standard & Poor’s 500 had its worst opening since 1928. The index bottomed out on February 11, having fallen 10.5% since trading began in January. The market did rebound, finishing the quarter 0.7% ahead. But tracking the index would have resulted in a hair-raising ride. And while the first quarter might be seen as an anomaly, volatility in markets is not.
In fact, according to a Natixis Portfolio Research and Consulting Group analysis, since 1928 investors in the S&P 500 Index have experienced a 10% correction more than once per year and a 5% decline more than three times per year on average.1
“It is critical to understand the risks in your portfolio, so it’s troubling to see investors mistakenly assign benefits to index funds that they don’t actually have,” said John Hailer, CEO of Natixis Global Asset Management for the Americas and Asia. “Index funds have a place in portfolios, but their low cost seems to be providing a ‘halo effect’ that could blind-side investors during volatile markets.”
Professional investors see the role for passive investing differently. Recent surveys of both institutional investors and financial advisors by Natixis showed they preferred active strategies to take advantage of market movements, generate alpha and provide risk-adjusted returns, while viewing passive investing primarily as a way to save on management fees.
1 Source: Natixis Portfolio Clarity Trends Report, Winter 2016.
Investors willing to use new investment strategies
The survey finds evidence that investors are willing to move beyond 60/40 allocation investment approaches. Nearly two-thirds (65%) say a traditional approach (equities and bonds) to portfolio allocation is no longer the best way to pursue returns and manage investments.
Further, 70% of investors want new strategies that are less tied to broad markets and 75% favor strategies that can help them better diversify their portfolio, an approach that would seem to open the door to wider ownership of alternative investments.
But just over half of investors (52%) surveyed actually own alternative assets, a grouping that includes private equity, long-short funds, hedge funds and real estate.
Investors who don’t own alternatives say the assets are too risky (56%); 34% acknowledge they don’t understand how alternatives work, and 28% don’t think they need alternatives.
Investors say learning more about investing is the number one thing that would help them better achieve their investment objectives – adding to their financial knowledge was named by 42% of respondents.
“It is encouraging to see investors are looking beyond traditional asset classes to build portfolios designed to help them reach their financial goals through the widest range of potential market conditions,” said Hailer. “However, it is clear the financial industry still needs to provide more education to help investors make informed decisions.”
Investors thinking long term
Outside events, including the outcome of the U.S. presidential election, could cause volatility in financial markets over the next 12 months, investors say. They identify the leading financial threats in that time as:
- Global economic slowdown – identified by 41% of investors
- Domestic recession – 37%
- Presidential election – 35%
- Interest rates – 34%
- Oil prices – 31%
The survey also found 60% of investors say it’s difficult to keep their emotions in check when the market swings, and 66% admit they feel helpless to protect their portfolio from market shocks.
Despite their concerns, 65% say market shocks will not affect their long-term investment strategy. Seventy-nine percent say long-term growth is more important than short-term gains (21%).
Investors want personalized advice
Overall, 68% of survey participants avail themselves of some type of advice – 48% work exclusively with personal financial advisors and 6% use only automated online services, also known as robo-advisors. Another 14% use a combination of personal and robo-advisors.
Seventy-one percent of investors say professional advice is worth the fee. One reason for that response: 73% think people who have professional advisors are more likely to achieve their financial objectives than those who don’t.
Beyond investment performance, the top things investors would most value getting from a financial advisor are:
- Help making more informed decisions about their investments (43%)
- Help setting goals and establishing plans (42%)
- Personalized advice in volatile and uncertain markets (40%)
Investors also are interested in going beyond dollars and cents by making investments that use environmental, social or governance (ESG) factors. Nearly three-quarters (76%) say it is important to invest in companies that reflect their personal values, including those that have a positive social impact (70%) and a good environmental record (70%) and are ethically run (83%). However, only 57% reported having discussed socially responsible investing with their financial advisor.
“Fortunately investors know they need help from a professional, but they want more than an investment recommendation,” Hailer said. “Investors want a relationship that will make them smarter and better informed. Advisors need to make sure they are making every effort to listen to investors and personalize their services to best meet investors’ needs and goals.”
About the survey
Natixis surveyed 750 individual investors
across the United States with a minimum of $200,000 in investable
assets. The online survey was conducted in February 2016 and is part of
a larger global study of 7,100 investors in 21 countries from Asia,
Europe, the Americas and the Middle East. The findings are published in
a new whitepaper, “Help Wanted: How investor behavior is rewriting the
job description for financial professionals.” To download a copy and
hear John Hailer discuss the results of the survey, visit http://durableportfolios.com.
About Natixis Global Asset Management
Natixis Global Asset
Management serves thoughtful investment professionals with more
insightful ways to understand and manage risk. Through our Durable
Portfolio Construction® approach, we help them construct more
strategic portfolios that seek to produce better outcomes in today’s
unpredictable markets. We draw from deep investor and industry insights
and partner closely with our clients to put objective data behind the
discussion.
Natixis is ranked among the world’s largest asset management firms.1Uniting over 20 specialized investment managers globally ($884.9 billion AUM2), we bring a diverse range of solutions tailored to meet every strategic challenge. From insight to action, Natixis helps our clients better serve their own with more durable portfolios.
Headquartered in Paris and Boston, Natixis Global Asset Management, S.A.’s assets under management totaled $884.9 billion (€776.4 billion) as of March 31, 2016.2 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 Active Investment Advisors;3 AEW Capital Management; AEW Europe; AlphaSimplex Group; Axeltis; Darius Capital Partners; DNCA Investments;4 Dorval Finance;5 Emerise;6 Gateway Investment Advisers; H2O Asset Management;5 Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; Managed Portfolio Advisors;3 McDonnell Investment Management; Mirova;5 Natixis Asset Management; Ossiam; Seeyond;7 Vaughan Nelson Investment Management; Vega Investment Managers; and Natixis Global Asset Management Private Equity, which includes Seventure Partners, Naxicap Partners, Alliance Entreprendre, Euro Private Equity, Caspian Private Equity and Eagle Asia Partners. Visit ngam.natixis.com for more information
More about John Hailer, CEO of the Americas and Asia, Natixis Global
Asset Management
As President and Chief Executive Officer of
Natixis Global Asset Management, John
Hailer is responsible for distribution strategies worldwide and
oversees the business activities of the firm’s asset management
affiliates in the Americas and Asia. He has been a key spokesperson for
the Durable
Portfolio Construction Research Center and has worked to position
Natixis as a global solutions provider for clients worldwide.
1 Cerulli Quantitative Update: Global Markets 2015 ranked Natixis Global Asset Management, S.A. as the 17th largest asset manager in the world based on assets under management as of December 31, 2014.
2 Net asset value as of March 31, 2016. Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC’s definition of ‘regulatory AUM’ in Form ADV, Part 1.
3 A division of NGAM Advisors, L.P.
4 A brand of DNCA Finance.
5 A subsidiary of Natixis Asset Management.
6 A brand of Natixis Asset Management and Natixis Asset Management Asia Limited, based in Singapore and Paris.
7 A brand of Natixis Asset Management.
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