#1 – Value Finally Outperformed – but Advisors Favored Growth
Despite value finally outperforming growth in Q4, moderate risk portfolios demonstrated the largest growth tilt we’ve seen over the past three years. While 60% of portfolios showed a growth bias, only 19% tilted to value. For portfolios with dedicated sector strategies, two growth-oriented categories – healthcare and technology – remain above average, while energy-related strategies are appearing much more infrequently. We continue to monitor this data for signs of renewed interest in value as well as in sectors that are more leveraged to the reopening economy.
Average Moderate Model Tilts to Growth
Sector Allocations Favor Tech and Healthcare
Source: Natixis Portfolio Clarity® data as of 12/31/2020. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. The Natixis Portfolio Clarity® Moderate Risk Peer Group is based on 182 moderate portfolios submitted to Natixis Portfolio Clarity® from July to December 2020.
#2 – Emerging Market Equities Gaining Traction
Emerging market equity allocations were on the rise in the second half of 2020. We see increases in the average EM allocation as well as the frequency of portfolios holding dedicated EM equity strategies.
Emerging Market Equity Positioning
Source: Natixis Portfolio Clarity®, Morningstar. The Natixis Portfolio Clarity® Moderate Risk Peer Group is based on 182 moderate portfolios submitted to Natixis Portfolio Clarity® from July to December 2020. Cumulative net flows are for the Morningstar “Diversified Emerging Markets” category. Data as of 12/31/2020.
We’re seeing signs of duration extension as well as higher credit quality in moderate model portfolios. Allocations to AAA securities hit record highs and 80% of fixed income holdings are rated investment grade.
Focus on Quality in Fixed Income Allocations
Source: Natixis Portfolio Clarity®, Morningstar. The Natixis Portfolio Clarity® Moderate Risk Peer Group is based on 182 moderate portfolios submitted to Natixis Portfolio Clarity® from July to December 2020. Duration is reported in years (right hand axis). Data as of 12/31/2020.
In a year marked by equity market dislocations, we see lower allocations to alternatives, continuing a multi-year downward trend. Of the five major alternatives categories we track, managed futures had the smallest average allocation – despite having the lowest correlation to the S&P 500® and being one of the strongest performers during the March 2020 selloff.
Allocations to Alternatives
12/31/2020 Allocation by Category
Source: Natixis Portfolio Clarity®, Morningstar, Bloomberg. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. The Natixis Portfolio Clarity® Moderate Risk Peer Group is based on 182 moderate portfolios submitted to Natixis Portfolio Clarity® from July to December 2020. Data as of 12/31/2020.
The first quarter of 2020 was particularly difficult for many income models, which often use asset classes like dividend-paying equities and high yield bonds. Portfolio allocations appear little changed since then, with marginal increases in US equity and decreases in return-seeking credit. With spreads near all-time tights, a 4% yield now requires a B-rated bond portfolio, forcing advisors to make challenging decisions about reducing income targets or extending risk and reducing diversification.
Balanced Income Models: Average Allocations
US Corporate Credit Yield
Source: Source: Natixis Portfolio Clarity®, Morningstar. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Based on 63 portfolios submitted to Natixis Portfolio Clarity® from October 2019 to December 2020 with total portfolio yield above 3.0%. Data as of 12/31/2020.
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.
S&P 500® Index is a widely recognized measure of U.S. stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large cap segment of the US equities market.
CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.
Investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, international and emerging markets. Additionally, alternative investments, including managed futures, can involve a higher degree of risk and may not be suitable for all investors. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
The credit quality of a particular security, or the average credit quality of a group of securities does not ensure the stability or safety of the overall portfolio. Credit quality reflects the highest credit rating assigned to individual holdings of the account among Moody's, S&P or Fitch; ratings are subject to change. Bond credit ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest).
Emerging markets refers to financial markets of developing countries that are usually small and have short operating histories. Emerging market securities may be subject to greater political, economic, environmental, credit and information risks than U.S. or other developed market securities.
Sustainable investing focuses on investments in companies that relate to certain sustainable development themes and demonstrate adherence to environmental, social and governance (ESG) practices; therefore the universe of investments may be limited and investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. This could have a negative impact on an investor's overall performance depending on whether such investments are in or out of favor.
Alternative investments involve unique risks that may be different than 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.
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Managed Futures use derivatives, primarily futures and forward contracts, which generally have implied leverage (a small amount of money used to make an investment of greater economic value). Because of this characteristic, managed futures strategies may magnify any gains or losses experienced by the markets they are exposed to. Managed futures are highly speculative and are not suitable for all investors.
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