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Portfolio > Alternative Investments

How Advisors Are Tackling Volatility

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Financial advisors consider ongoing volatility one of the top macro issues that will adversely affect client portfolios over the next 12 months, according to Jefferson National’s second annual Advisory Authority survey.

The survey was conducted by Harris Poll online in the U.S. in March among the 683 financial advisors, 440 of whom were independent registered investment advisors and 243 broker-dealers, and 733 investors, ranging from mass affluent to ultra-high net worth.

Seventy-six percent of RIAs and fee-based advisors, and 89% of the highest earning ones, and 63% of investors in the survey expected volatility to rise in the coming year, agreeing that it would be exacerbated by both U.S. politics and domestic and international economics.

Britain’s Brexit vote continued to roil global markets on Monday.

Both groups were also closely aligned on the main causes of volatility:

  • Energy prices: advisors 34%, investors 33%
  • Federal Reserve policy: advisors 32%, investors 23%
  • U.S. presidential election: advisors 30%, investors 36%
  • Instability in China’s market: advisors 21%, investors 25%

Addressing Volatility

Sixty-two percent of all RIAs and fee-based advisors said they felt pressure to revise their investing strategy in the current volatile market.

Protecting assets stood out as their priority, as 69% said they would invest somewhat or much more conservatively to address volatility, and just 14% said they would invest more aggressively.

Three-fourths said they would invest somewhat or much more tactically, while only one in 10 said they would invest more passively to address volatility.

Investors evinced less pressure to change their investing strategy: 41% said they felt pressure, 44% said they did not and 15% didn’t know or weren’t sure.

Among investors who felt pressure to revise their strategy, 72% said they planned to invest more tactically, and 69% to invest more conservatively.

“When it comes to investing, protecting clients’ portfolios and protecting their own practice, ongoing volatility remains the number one concern of RIAs and fee-based advisors year over year — while investors are aware of volatility’s impact, they say that protecting assets is their number-one concern,” Jefferson National president Laurence Greenberg said in a statement.

Alternatives emerged in the survey as an important solution in today’s volatile market.

Forty-eight percent of all RIAs and fee-based advisors rated exchange-traded funds and alternative mutual funds — such as those using a long/short equity, managed futures and multi-strategy approach — as their number one solution.

Sixty percent of high earning advisors indicated they used liquid alternatives, according to the poll.

In addition, 42% of all advisors said they used long-only alternative asset classes (such as REITs, currencies and commodities) to manage risk in current volatile markets, 37% used defined outcome solutions (indexed annuities and managed options portfolios), 31% private partnerships or direct investments (hedge funds, private equity and real estate) and 28% semi-liquid placement (structured notes, nontraded REITs).

— Check out Brexit and Investing: There’s a Sale Going On! on ThinkAdvisor.


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