Financial advisors are responding to stock market ups and downs by making more use of alternative investments products and active portfolio management strategies.
Jefferson National Life Insurance Company, Louisville, Ky., has published those findings in a summary of results from an online poll of about 500 registered investment advisors that was conducted in August
About 68% of the advisors said they have increased use of commodities, real estate investment trusts and other alternative investments since 2008, and 67% said their allocations to alternative investments will continue to increase. About 11% predicted alternative asset allocations will increase substantially over the next 5 years, and 62% said they think alternative assets will become even more important than traditional investments in the future.
When asked why they have used alternative assets, 61% of the advisors said they have been using the assets to address concerns about “portfolio correlations” – the worry that the prices of all of the assets in a portfolio will fall at the same time.
About 49% of the advisors listed “absolute returns” as a reason to use alternative assets.
A few years ago, many advisors and financial services companies were promoting a “buy and hold” strategy, cited studies by economists suggesting that the performance of the stock market is a “random walk” and that active portfolio managers have no better chance of outperforming the market than a dartboard has.
Now, “tactical solutions” – active portfolio management techniques – seem to be coming back in style.
About 76% of the advisors polled said they believe that active portfolio managers can outperform an index over the long term, up from 63% in 2010.
About 66% of the advisors said client confidence improves when an advisor uses a tactical asset management strategy.
- Warren S. Hersch