BOSTON--(BUSINESS WIRE)--In its mid-year review of financial advisors’ moderate-risk portfolios, the Natixis Portfolio Clarity® US Trends Report shows active asset management rallying in the first half of 2017, with the best-performing portfolios having higher allocations to US, international and emerging market stocks and greater allocations to active managers than index funds.
The average moderate-risk model portfolio returned 6.8% for the first half of the year, outpacing the 60/40 portfolio represented by the S&P 500® and the Bloomberg Barclays US Aggregate Bond Index by 0.30%. The top quartile of portfolios, which had lower exposure to passive investments, outperformed the bottom quartile by more than 300 basis points (3.0%). Portfolios favoring passive managers outperformed slightly in 2015 and 2016. But this trend has reversed in the first half of 2017, with portfolios favoring active managers outperforming by 0.26%.
What worked in the first half of 2017
The most successful strategies during the first half of 2017 included higher allocations to US, international and emerging market equities; strategies that favored growth equities over value; actively managed mid-cap, small-cap and international funds; and portfolios with lower exposure to fixed income and alternative investments, indicating a decrease in the benefits of portfolio diversification.
Strong international equity performance in particular drove returns, and this was the most efficient asset class as a return enhancer. For example, a 13% allocation to international equities drove 31% of portfolio return. At the same time, the relatively higher exposure to this asset class resulted in the portfolio risk contribution from equities edging back up to 90% while US high yield bond risk trended down to 5% after climbing the past two years.
As interest rates have started to rise, bond allocations have continued to increase, but the allocations have favored less rate-sensitive categories such as world bonds, emerging market debt and nontraditional bonds. Still, many portfolios have substantial interest rate risk should yields begin to rise more broadly. With the US 10-year Treasury’s duration at 8.84 on June 30, a 1% increase in the 10-year Treasury would cause a principal loss of 8.84%, a figure higher than many investors would be likely to expect.
Despite volatility being at an all-time low, many investors are nervously awaiting what may come next. Given the heightened correlation between stocks and bonds in recent years, a traditional 60/40 asset allocation may not be sufficient to protect investors when the next storm does come. Some active allocators are adding alternative investments, such as option writing, which accounts for 30% of alternative allocations, as a diversifier in lieu of bonds.
“Investors are increasingly concerned about market volatility, but they’ve recently reduced allocations to a group of assets that could offer protection from a market shock – alternatives,” said Marina Gross, Executive Vice President of Natixis’ Portfolio Research and Consulting Group. “Although greater diversification hasn’t paid off in the last few quarters, alternatives could play a more important role going forward by giving investors peace of mind once the unexpected inevitably occurs. In today’s environment, where risks are constantly evolving, financial professionals should have a rigorous understanding of client portfolios and take a quantitative approach to monitoring them, which is more attainable now than ever before.”
Allocation trends by asset class
Equity, fixed income and allocation funds continued to edge up in the first half of 2017 compared to a year ago, as enthusiasm for alternative investments slipped:
- Equities: 52.3%, up from 52.2% at end of the first half of 2016
- Fixed income: 32.1%, up from 30.7%
- Asset allocation funds: 6.3%, up from 5.2%
- Alternative assets: 5.5%, down from 7.5%
- Cash: 2%, down from 2.4%
Methodology
The Natixis Portfolio Clarity US Trends Report is designed to track trends in professional investor behavior over time by analyzing the composition of financial advisors’ model portfolios. The US Trends Report provides a twice-yearly analysis of moderate portfolios submitted to the Natixis Portfolio Clarity consultant team for review. Analysis compares performance and asset allocations of Moderate Model Portfolios with each other and selected benchmarks. Data in this issue represents 345 portfolios submitted by financial advisors from January 1, 2017 through June 30, 2017. These portfolios are among a broader sample of 2,812 portfolios submitted in the four-and-a-half-year period from January 1, 2013 through June 30, 2017.
About Natixis Portfolio Clarity
Natixis Portfolio Clarity® is a portfolio consulting service provided by the company’s Portfolio Research and Consulting Group, where specialized consultants work with investment professionals who seek a deeper level of insight to build smarter portfolios, using sophisticated analytic tools to identify and quantify sources of risk and return.
For more information, visit ngam.natixis.com/us/natixis-portfolio-clarity.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of August 2017. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Global Asset Management, or any of its affiliates. There can be no assurance that developments will transpire as forecast, and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside sources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice.
Risks
Investing involves risk, including the risk of loss. Alternative investments involve unique risks that may be different from those associated with traditional investments, including illiquidity and the potential for amplified losses or gains. Investors should fully understand the risks associated with any investment prior to investing. Diversification does not guarantee a profit or protect against a loss.
About Natixis Global Asset Management
Natixis Global Asset Management serves thoughtful investment professionals worldwide with more insightful ways to invest. Through our Durable Portfolio Construction® approach, we focus on risk to help them construct more strategic portfolios that seek to endure 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 Global Asset Management is ranked among the world’s largest asset management firms.1 Uniting over 20 specialized investment managers globally ($951.7 billion AUM2), we bring a diverse range of solutions to every strategic opportunity. From insight to action, Natixis Global Asset Management helps our clients better serve their own with more durable portfolios.
Headquartered in Paris and Boston, 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 Index Advisors®;3 AEW Capital Management; AEW Europe; AlphaSimplex Group; Darius Capital Partners; DNCA Investments;4 Dorval Asset Management;5 Emerise;6 Gateway Investment Advisers; H2O Asset Management;5 Harris Associates; Loomis, Sayles & Company; Managed Portfolio Advisors®;3 McDonnell Investment Management; Mirova;7 Natixis Asset Management; Ossiam; Seeyond;8 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. Not all offerings available in all jurisdictions. For additional information, please visit the company’s website at ngam.natixis.com | LinkedIn: linkedin.com/company/natixis-global-asset-management.
1 Cerulli Quantitative Update: Global Markets 2017
ranked Natixis Global Asset Management, S.A. as the 15th
largest asset manager in the world based on assets under management
($877.1 billion) as of December 31, 2016.
2
Net asset value as of June 30, 2017. 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 subsidiary of
Natixis Asset Management. Operated in the US through Natixis Asset
Management US, LLC.
8 AUM includes all
brands and subsidiaries AUMs.
9 A brand of
Natixis Asset Management. Operated in the US through Natixis Asset
Management US, LLC.
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