Investors seeking alts as stock/bond mix fails to excite

Natixis report says savvy advisers in catbird seat amid search for new approach to asset allocation

Oct 17, 2012 @ 8:42 am

By Jeff Benjamin

Stock market volatility and prolonged global economic turmoil are contributing to a lack of investor confidence in traditional asset allocation models, according to a new report from Natixis Global Asset Management.

The research further supports the notion that investors are looking for alternative investment strategies, which should put savvy financial advisers in the catbird seat.

The report, released today, found that an overwhelming majority of investors are ready to move beyond traditional portfolios of 60% stocks and 40% bonds.

The survey, which included responses from more than 5,000 individuals worldwide, including more than 700 in the United States, found that 69% of the respondents believe it is time to replace traditional investing techniques with some more creative approaches.

Further, 75% of respondents described the traditional 60/40 portfolio as no longer the best way to generate returns and manage risk.

“Investors want a more durable portfolio,” said Bob Hussey, senior vice president of institutional services at Natixis, which manages $711 billion in assets.

While investor frustration with traditional models is not new, this latest report does acknowledge the breadth of investor migration toward alternative strategies and “opens the door for financial advisers” to be more proactive in working with clients, Mr. Hussey said.

“Investors are interested in the idea of alternative strategies, but they still lack the knowledge on what alternatives are and how they can play a role in a portfolio,” he said.

Fifty-two percent of the investors said they are interested in products not correlated to the performance of the broader market.

The general appetite for alternatives was highest among the youngest segment of survey respondents.

Among Gen Y respondents, 53% are open to alternative investments, compared to 42% for Gen X, 33% among baby boomers, and 24% for older Americans.

The biggest barrier to alternative investments appears to be the complexity of the products, with 48% of the respondents saying they have little understanding of alternatives, and 69% saying they will only invest in products that they understand fully.

Mr. Hussey said he believes financial advisers in general have “moved up the education curve,” which is what investors are hoping for.

Among the survey respondents, 51% said they would consider alternative investments if their advisers recommended them, but only 35% of respondents said they have discussed alternatives with their advisers.

“After living through [the market downturn of] 2008, investors and advisers have a better understanding of the notion of not chasing risk,” Mr. Hussey said. “The use of alternatives is a tool that helps advisers address the notion of risk management, and the thirst for knowledge at the investor level creates an opportunity for advisers.”

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