The annual Natixis Investment Managers Global Portfolio Barometer offers insights into model portfolios and asset allocation decisions from across the world. The report highlights the differences in moderate risk model portfolios found between countries and seeks to explain the key drivers in performance differentials.

In sharp contrast with 2017 when performance was uniformly positive across all regions, global markets suffered broadly negative returns in 2018. In fact, just 2% of the moderate portfolios reviewed by the Natixis Portfolio Research & Consulting Group had positive returns for the year. Equity holdings were the primary performance driver, contributing to about two-thirds of portfolio losses on average (Figure 1). Performance results were also affected by currency exchange rates. Notice the difference in returns between the MSCI USA Index in euros (EUR) and in dollars (USD).

FIGURE 1 – What a difference a year makes – Stock market returns, in local currency, 2018 vs. 2017
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Source: Natixis Portfolio Research & Consulting Group, Morningstar.

Which region had the best returns in 2018?
Unfortunately, even diversifying into fixed income and alternatives offered little relief in 2018, as those asset classes also suffered losses or muted performance at best. Overall portfolio risk also rose substantially during the year from remarkably low levels in 2017 – not surprising given the marked increase in equity market volatility. Even so, this increase only brings volatility back to 2016 levels. So while it may not feel like it, the 2017 period of calm was the anomaly, not 2018.

FIGURE 2 – Moderate risk peer group average performance by region – in portfolio base currency (1/1/18–12/31/18)
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Source: Natixis Portfolio Research & Consulting Group, VDOS. Past performance is no guarantee of future results.

There is also a huge disparity in the way investors in different regions allocate to different asset classes to construct moderate risk model portfolios. Advisors in the UK and US are the most bullish on equities, with weights in portfolios over 50%, whereas Italians allocate closer to 20%. On the other hand, Italian and Latin American advisors allocate around 40% to fixed income, while in the UK and France it is below 20%.

Figure 2 shows the comparative performance of the moderate portfolios by region, in relation to their overall risk, as measured by standard deviation. Italian portfolios were the strongest performers in 2018, with the lowest risk levels and least negative returns. This can largely be attributed to their low allocation to equities and high allocation to fixed income, as shown in Figure 3. In a year like 2018, lower overall risk improved competitive returns.

FIGURE 3 – Average allocations across moderate risk portfolios by region (number of portfolios analyzed)
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Source: Natixis Portfolio Research & Consulting Group, VDOS. Asset classes are based on Morningstar categories. Real assets represents the sum of commodities, property and miscellaneous.

Where in the world?
While allocation preferences vary considerably across the globe, home country bias is fairly pronounced: Advisors prefer investing in stocks tied most closely to their local economy. But they also understand the benefits of diversifying more globally. For US investors, overweighting US equities in 2018 was a benefit, as US equity held up relatively well during the year. However, US portfolios’ second largest allocation was to global equities (excluding US), which did much worse, losing 14% for the year in US dollars. Taken together, US investors suffered the most from falling equity markets in 2018.

To learn more about how allocation decisions affected portfolio risk and return levels, read the full 2018 Global Portfolio Barometer.
Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

All investing involves risk, including the risk of loss.

The provision of this material and/or reference to specific securities, sectors, or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of any regulated financial activity. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.

The index information contained herein is derived from third parties and is provided on an “as is” basis. The user of this information assumes the entire risk of use of this information. Each of the third party entities involved in compiling, computing or creating index information disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to such information.

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.

Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity. Below investment grade fixed income securities may be subject to greater risks (including the risk of default) than other fixed income securities.

Standard deviation is a statistical measure of market volatility and risk.

Methodology

All figures, unless otherwise stated, are derived from detailed analysis conducted by the Portfolio Research & Consulting Group of 421 moderate risk model portfolios received in the last six months of 2018 across seven different locations worldwide: France, Germany, Italy, Latin America (including US-Offshore), Spain, the UK and the USA. Peer group allocations shown are the averages calculated across all the models in the sample for each region. The performance data covers 1 Jan through 31 Dec 2018 unless otherwise stated. Except for Spain, the Moderate Model Portfolios data is based on model portfolios that have been analyzed by the Portfolio Research & Consulting Group and have been designated as moderate risk by investment professionals. The Portfolio Research & Consulting Group collects portfolio data and aggregates it in accordance with the peer group portfolio category that is assigned to an individual portfolio by the investment professionals. The categorization of individual portfolios is not determined by the Portfolio Research & Consulting Group, as its role is solely as an aggregator of the pre-categorized portfolios.

Data for Spain is derived from VDOS data. Our sample includes all moderate risk allocation portfolios having fund weights 70%–100% of total assets, with these weights rebalanced to 100%. Statistics based on weight, returns and return contributions are derived from holdings of portfolios extant in Q3 2018 (the latest data available) and simulated over the period 1 Jan through 31 Dec 2018.

Please note that risk attributes of portfolios will change over time due to movements in the capital markets. Portfolio allocations provided to Natixis are static in nature, and subsequent changes in an investment professional’s portfolio allocations may not be reflected in the current data.

Natixis Portfolio Clarity® is a registered trademark of Natixis Advisors, L.P. in the United States.

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