Eighty per cent of North American investment professionals agree that investors have taken on too much portfolio risk in a rate environment that has distorted stock values and decimated bond yields, according to a new survey by Natixis Investment Managers.
Sentiment from fund selectors reflects a shift in the market forces that drove stocks to record highs last year and now call for portfolio repositioning as central banks contemplate raising rates, markets begin to normalize and the world learns to live with COVID-19.
According to the survey, most fund selectors expect more volatility in the stock market (78 per cent) and bond market (71 per cent), some 68 per cent say more frequent rebalancing will be important as markets churn and 84 per cent are expanding their model portfolio offering, an approach they say streamlines the investing process, gives clients a more consistent investment experience and can enhance investors’ potential to outperform the market benchmarks.
Advisors using sophisticated strategies and tools
“Wealth managers’ goal is to construct portfolios with the right balance of risk and return for each investor that helps them avoid emotionally charged buying or selling and positions them for success,” said Matthew Coldren, Executive Vice President and Head of the U.S. Financial Institutions Group at Natixis Investment Managers. “To address their clients’ increasingly complex needs, financial advisors are using sophisticated strategies and tools that were once available to only the largest institutional investors, which can help give their clients a leg-up on achieving their financial goals.”
Fund selectors see increased risks for investment portfolios, including high valuations being distorted by low rates. As well, some 71 per cent think the stock market has grown at a rate that isn’t sustainable and that top portfolio concerns are inflation (76 per cent), rates (76 per cent), volatility (51 per cent) and valuations (49 per cent).
“Given concerns about increased volatility, fund selectors are clearly telling us that model portfolios are likely to take a prominent place in plans for 2022 as they look to present an integrated, risk-based solution that can help investors navigate a riskier market environment,” said Dave Goodsell, Executive Director of Natixis IM’s Center for Investor Insight. “At the same time, many are looking to complement their core model offering with non-correlated investments and other specialized strategies.”
