Investors’ goals have remained fairly consistent, but given the constraints of muted return outlooks, low yields and slow growth, they can benefit from a broader, more innovative and more unconstrained array of investment solutions, according to Neuberger Berman’s head of client coverage, chief operating officer Andrew Komaroff.
These include new approaches to traditional asset classes, taking advantage of dislocations created by changing regulation and specialized strategies managed within niche areas of the capital markets.
“As a result, we see a shifting set of priorities for different investor groups,” Komaroff said.
Komaroff offered these insights as part of a presentation by Neuberger Berman senior investors. They anticipate a modestly positive environment for risk assets, though with uncertainty associated with the effects of monetary policy divergence, low oil prices, a strong U.S. dollar and China’s growth trajectory.
Individuals and Advisors
Individual investors and their advisors in 2016 continue to face the challenges associated with intergenerational wealth transfer, Komaroff said.
“For 2016, we envision a broadening of the range of strategies available to individuals and their advisors to complement traditional diversifiers to familiar, core positions.”
With bond yields still hovering in the low single digits, he said, it is critical to evaluate a “new yield order” of nontraditional sources of yield that may be further out on the risk-return spectrum, such as senior floating-rate loans, master limeted partnerships and, on a selective basis, emerging market debt.
Credit long/short strategies can also play a role, given their ability to capture alpha without loading up on interest rate or duration risk.
“Market turbulence is reinforcing the role of investment products that can dampen overall portfolio volatility and still provide some equity-like upside potential,” Komaroff said.
Hedge fund strategies are now available more broadly through liquid alternatives retail funds that employ these strategies. He said investors increasingly understand that such vehicles’ potential value in the current low-interest-rate, volatile environment.
He said Neuberger Berman believed that market dynamics may be shifting in favor of active managers in 2016. Higher U.S. interest rates could contribute to more dispersion in company results, which could bode well for stock pickers.
For some time, environmental, social and governance issues have provided a valuable window through which to assess the individual securities — tied both to potential market opportunities and risks, Komaroff said.
With companies increasingly reporting on ESG matters, investors are becoming more aware of links between social issues and investing. “For 2016, individuals and their advisors can draw on socially responsive investment strategies to build a dialogue and broaden opportunities for return.”
Komaroff said the search for portfolio growth and yield, along with volatility mitigation options, were a top priority as plan sponsors grapple with updating plan options to deal with an evolving market.
In 2016, Neuberger Berman expects a continued shift in sponsor preferences to add global options to complement domestic ones in the search for growth.