#1 – Financial advisors are increasing allocations to fixed income – at the expense of alternatives.
Strong equity returns across US and international markets may have inspired some profit taking and rebalancing in 2019. But fixed income, not alternatives, was the primary beneficiary in moderate portfolios.
Equity, Fixed Income Weight
Change in Weight over 2019
Based on 4,235 moderate peer group portfolios submitted to Natixis Portfolio Clarity® from January 2013 to December 2019. 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.
Source: Natixis Portfolio Clarity®, InvMetrics
Fixed income exposures ticked up while equity allocations declined slightly and alternative allocations approached 7-year lows.
#2 – Triumph of the large: Advisors continue to favor large-cap equity over small/mid-caps.
In a bull market that continues to favor the biggest names, advisor allocations to large-cap equities reached their highest level since 2013. Exposure to small and mid-cap funds remained well below average, although active managers provided competitive returns across small/mid categories, particularly in US growth funds.
Percent of Active Funds Outperforming Passive Funds
(as of 12/31/19)
Gray boxes – 50% or more active funds outperforming. Light blue boxes – Less than 50% of active funds outperforming.
Source: Natixis Portfolio Clarity®
Are advisors sacrificing equity diversification in the pursuit of returns?
#3 – Curb your enthusiasm: Advisors tilt towards growth funds, but just barely.
Growth, value or none of the above? While the overall trend has favored growth funds over value since mid-2018, one-third of advisors don’t seem to favor either style.
US Equity Style Weight
Growth/value: Equity Style Growth weight is the average portfolio weight in US Large Growth, US Mid Growth and US Small Growth and half of US Large Blend, Mid Blend and Small Blend. Equity Style Value weight is the average portfolio weight in US Large Value, US Mid Value and US Small Value and half of US Large Blend, Mid Blend and Small Blend.
A portfolio is considered as style neutral if (equity style growth – equity style) is between -2% and 2%. A portfolio is considered with growth bias when (equity style growth – equity style) is larger than 2%. A portfolio is considered with growth bias when (equity style value – equity growth style) is larger than 2%.
US Moderate peer group consists of 4,235 portfolios submitted to Natixis Portfolio Clarity® from January 2013 to December 2019. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Data is based on rolling three-month averages.
Source: Natixis Portfolio Clarity®
#4 – Sector equity and individual stocks are slowly getting the squeeze. Except tech.
Use of sector equity products and individual stocks has declined steadily since 2016 as advisors seem increasingly reluctant to express specific views. Allocations to energy have fallen sharply, perhaps in reaction to heightened interest in sustainable/ESG investing.
Sector Equity and Stock Weight
(in %) US moderate peer group consists of 4,235 portfolios submitted to Natixis Portfolio Clarity® from January 2013 to December 2019. Portfolios with munis are excluded for this analysis. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.
Source: Natixis Portfolio Clarity®, Invmetrics
#5 – Advisors play defense as they aren’t being paid to take risk.
As spreads tightened during the year, advisors moved into higher quality assets and extended duration. Average duration in the Moderate Model Portfolios has historically been shorter than the Bloomberg Barclays US Aggregate Bond Index, but extended to 3.9 years in 2019.
Portfolio Duration(Q1 2013–Q4 2019)
(in yrs, 2014 – 2020)The three reference lines in each column designate the 75th, 50th, and 25th percentiles for portfolio duration. High quality duration categories are in purple and brown; low quality duration categories are in blue.
Duration is based on the most recent available data from Morningstar Direct. US moderate peer group consists of 4,235 portfolios submitted to Natixis Portfolio Clarity® from January 2013 to December 2019. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Data is based on three-month rolling averages.
Source: Natixis Portfolio Clarity®
#6 – ESG allocations are making inroads, but still have a long way to go.
While awareness of ESG (environmental, social, governance) investing is growing, it’s still a relatively minor factor in portfolio construction. Just 9% of advisor portfolios have ESG allocations of 25% or more.
Portfolios with >25% ESG
(in %, 2013 – 2020)Percentages are represented of those that indicate they incorporate ESG into their practice.
US Moderate peer group consists of 4,235 portfolios submitted to Natixis Portfolio Clarity® from January 2013 to December 2019. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Fund ESG status is based on Morningstar definition.
Source: Natixis Portfolio Clarity® and Natixis Investment Managers, Global Survey of Institutional Investors conducted by CoreData Research in October and November 2019. Survey included 500 institutional investors in 29 countries. MSCI ESG data.
The data contained herein is the result of analysis conducted by Natixis Advisors, L.P.’s consulting team on model portfolios submitted by Investment Professionals. The Natixis Portfolio Clarity® Moderate Peer Group consists of model portfolios that have been analyzed by the consulting team and have been designated as moderate by Investment Professionals.
Natixis Portfolio Clarity® collects portfolio data and aggregates that data in accordance with the peer group portfolio category that is assigned to an individual portfolio by the Investment Professionals. At such time that a Professional requests a report, the Professional will categorize the portfolios as a portfolio belonging to one of the following categories: Aggressive, Moderately Aggressive, Moderate, Moderately Conservative, or Conservative. The categorization of individual portfolios is not determined by Natixis Portfolio Clarity® as its role is solely as an aggregator of the pre‐categorized portfolios. Please note that risk attributes of the Moderate Peer Group will change over time due to movements in the capital markets. Portfolio allocations provided to Natixis Portfolio Clarity® are static in nature and subsequent changes in a Professional’s portfolio allocations may not be reflected in the current Moderate Peer Group data.
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