Six trends driven by the COVID markets

Natixis Portfolio Clarity consultant Mark Cintolo highlights recent asset allocation trends and what they may mean for the future.

The Natixis Portfolio Clarity® research team monitors asset classes, investment products and the markets, both in real time and from a historical perspective. Our database also contains more than 4,000 moderate model portfolios submitted by financial advisors. See how asset allocation trends have reflected the unprecedented market environment in the first half of 2020.


#1 – De-risking Leads to Record Cash Levels.
Faced with a massive equity selloff and historically low Treasury yields, investors piled into cash. By May 2020, the average cash allocation in portfolios designated as “moderate risk” climbed to nearly 4%, and 11% of portfolios showed double-digit allocations to cash. It remains to be seen how quickly some of this “dry powder” will be deployed for future opportunities.

Cash levels in moderate model portfolios spiked to a 7-year high
Cash levels in moderate model portfolios spiked to a 7-year high
Source: Natixis Portfolio Clarity®. Based on 4,449 moderate peer group portfolios submitted to Natixis Portfolio Clarity® from January 2013 to June 2020. Alternative investments involve unique risks that may be different from those associated with traditional investments, including illiquidity and the potential for amplified losses or gains. Investors should fully understand the risks associated with any investment prior to investing. Data is based on rolling three-month averages.


#2 – Gold Emerges as Safe Haven. 
In addition to cash, investors increasingly turned to gold and other precious metals for safety and equity diversification. Our model portfolio data showed more frequent occurrences and slightly higher allocations to precious metals over the first six months of the year, which aligns with a sharp increase in cumulative flows across the broader market.

Advisors turned to precious metals for protection in volatile markets
Advisors turned to precious metals for protection in volatile markets
Source: Natixis Portfolio Clarity®, InvMetrics. Based on 4,449 moderate peer group portfolios submitted to Natixis Portfolio Clarity® from January 2013 to June 2020. Alternative investments involve unique risks that may be different from those associated with traditional investments, including illiquidity and the potential for amplified losses or gains. Investors should fully understand the risks associated with any investment prior to investing. Data is based on rolling three-month averages.

Investors piled into gold as uncertainty dominated broader markets (Cumulative flows, $ billions)
Investors piled into gold as uncertainty dominated broader markets
Source: Natixis Portfolio Clarity®.


#3 – Fixed Income Allocations Play Defense.
Average credit quality improved in the moderate model portfolios we evaluated, with 75% of fixed income allocations rated BBB or higher, the most defensive positioning of the last three years.

Fixed income allocations favor highest quality securities
Fixed income allocations favor highest quality securitie
Natixis Portfolio Clarity®. Based on 4,449 moderate peer group portfolios submitted to Natixis Portfolio Clarity® from January 2013 to June 2020. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. ​Investment grade refers to bonds rated BBB/Baa or higher. Ratings are determined by third-party rating agencies such as Standard & Poor's or Moody's and are an indication of a bond's credit quality.


#4 – Home Country Bias Hits New High.
Is 80/20 the new neutral? Advisors pushed their equity allocations to 81% US in 2020, the highest concentration ever seen in our database. Thanks to years of relative outperformance, the US market cap weighted share of the MSCI All Country World Index has increased from 50% in 2013 to 57% today.

Equity allocations stay in the US amid ongoing market uncertainty
Portfolio Clarity US Trends Retail Midyear 2Q20 Chart

Source: Natixis Portfolio Clarity®, Invmetrics. US Moderate peer group consists of 4,449 portfolios submitted to Natixis Portfolio Clarity® from Jan 2013 to Jun 2020. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Moderate Peer group data is based on rolling 3-month average. Sector equity treated as US-based equity. The MSCI All Country World Index is a free float-adjusted market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. The MSCI ACWI is comprised of stocks from 23 developed countries and 24 emerging markets. ​


#5 – Growth and Tech Lead the Way.
The proportion of portfolios with a style bias to growth increased sharply in Q2, capping off a more gradual two-year climb. Technology, the best performing growth sector, saw additional popularity in the form of dedicated sector equity strategies. While growth and technology suffered sizable losses in the early 2000s, they have evolved into more defensive portfolio tilts more recently. 

Growth style bias in moderate model portfolios passes 50% mark in second quarter
Growth style bias in moderate model portfolios passes 50% mark in second quarter
Source: Natixis Portfolio Clarity®. Based on 4,449 moderate peer group portfolios submitted to Natixis Portfolio Clarity® from January 2013 to June 2020. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

Technology dominates sector allocations
Technology dominates sector allocations
Source: Natixis Portfolio Clarity®. US moderate peer group consists of 4,449 portfolios submitted to Natixis Portfolio Clarity® from Jan 2013 to Jun 2020. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.


#6 – Active Managers Proved Their Worth During Market Selloff.
Active US equity strategies provided good downside protection during the peak to trough period of 2/20–3/23/2020. The subsequent recovery saw stronger passive performance, but from the peak through the end of the period, active mid-cap value and small-cap growth manager performance outpaced passive.

Percentage of active funds that outperformed passive funds
Percentage of active funds that outperformed passive funds
Source: Natixis Portfolio Clarity®, Morningstar Direct. Unlike passive investments, active managers do not attempt to track or replicate an index. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

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