Model portfolios are playing an increasingly important role in many advisors’ practices, improving scalability and ensuring a more consistent client experience. There are other benefits, too. Financial professionals surveyed by the Natixis Center for Investor Insight indicate that 45% use models to access a wider range of asset classes more efficiently and 42% find that using models lowers the administrative burden.1

But as models become more mainstream, advisors are raising the bar for their portfolio providers. These rising expectations come as no surprise to Marina Gross, Executive Vice President and Portfolio Manager at Natixis Investment Managers Solutions – US. Her consulting team has analyzed more than 10,000 advisor models since 2012. “Over the years our in-depth reviews have provided some unique insights into the way advisors view risk, asset allocation, manager selection and portfolio returns,” she notes. “Advisors are growing more sophisticated in their use of models and they do expect more.” Addressing these concerns has helped guide and inform innovation and portfolio construction in the Natixis models.

Diverse Network of Managers
Gross points out that building and managing models leverages other key strengths of Natixis Investment Managers. Thanks to its multi-affiliate structure, independent thinking is part of the Natixis DNA. “We’re fortunate to have highly skilled and experienced management teams who are well-versed in multi-asset portfolio construction. We have a broad network of active managers to choose from – as well as a rigorous due diligence and manager review process to identify best-in-class passive strategies and non-affiliated managers when necessary.”

Guiding Principles: Active and Passive
The Natixis models reflect the belief that strategic, qualitative diversification is essential for pursuing alpha potential and managing risk. “Access to multiple asset managers supports meaningful diversification that reduces the chance of investments being managed in the same way,” says Christopher Sharpe, Chief Investment Officer and Portfolio Manager, Natixis Investment Managers Solutions – US. He adds that as technology continues to increase the efficiency of the capital markets, restricting a portfolio to an all-active or all-passive strategy shortchanges investors because there are distinct benefits and risks associated with both investment approaches.

In Sharpe’s view, “You can count on passive strategies to track the performance of an index – good or bad – with modest guaranteed underperformance attributable to fees. In contrast, active strategies bring the potential to outperform an index – but must overcome their higher fees in the process. A mix of both creates the most resilient portfolios.”

Case Study: Tactical Core Models
In the Tactical Core Models, the core holdings are actively managed funds, and ETFs are used to express the tactical views driven by the Natixis IM Solutions – US Investment Committee’s recommendations. For example, during the third quarter of 2020, the portfolios capitalized on two trends driven by the ongoing Covid-19 pandemic, as identified by the Investment Committee:

  • Overweight US large-cap and small-cap equity relative to the benchmark, as the global growth outlook favored the US, with room for additional fiscal and monetary support. Small-caps would likely benefit disproportionately from a vaccine, and large-caps – especially with growth exposure – were best insulated from any virus flare-ups.
  • Underweight international developed and emerging markets equity, as a second virus wave in Europe was dimming growth prospects for international equity. Uneven efforts to contain the virus across emerging markets were also hampering growth.
Diverse Range of Strategies to Target Advisors’ Needs
Differences in model type, construction and allocation in the Natixis models create a robust menu of portfolio options that can be used as core, completion, or thematic portfolios tailored to a range of risk profiles.

Once the model type has been selected, the construction approach can be either quantitative or fundamental and the allocation approach can be either dynamic or strategic. In the example of the Tactical Core Models, the construction is fundamental and the allocation timeframe is dynamic.

Tactical Core Model Characteristics 
Tactical Core Model Characteristics
Source: Natixis Investment Managers Solutions - US

These variations result in a broad range of models suitable for almost any type of advisor practice. For example, experience from portfolio consulting has shown that advisors are least confident in choosing alternative investments – although they understand the need for them. This led to the creation of the Alternative Completion Models, designed as a “plug and play” allocation that aligns with the risk profile of a client’s core portfolio.

The offering also includes a tax-aware variation of fundamental core models, and thematic models that focus on sustainable investing and income generation. “Responding to the needs of advisors and their clients has been the driving force behind growing our model business,” says Marina Gross. “We expect that advisors will continue to demand more from their model providers in the years ahead.”
1 Natixis Investment Managers, 2020 Global Survey of Financial Professionals, conducted by CoreData Research March-April 2020. Survey included 2,700 financial professionals in 16 countries.

Investing involves risk, including the risk of loss. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

Diversification does not guarantee a profit or protect against a loss.

All asset allocation scenarios are for hypothetical purposes only and are not intended to represent a specific asset allocation strategy or recommend a particular allocation. Each investor's situation is unique and asset allocation decisions should be based on an investor's risk tolerance, time horizon and financial situation.

Asset allocation models are intended for informational purposes only and should not be construed as a recommendation or investment advice, as the allocations provided do not take into account the investment objectives, risk tolerance, restrictions, liquidity needs or other characteristics of any one particular investor. Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.

Natixis Advisors, L.P. does not provide tax advice. Please consult with your financial advisor or tax professional.

Natixis Advisors, L.P. provides discretionary advisory services through its divisions Active Index Advisors®, Managed Portfolio Advisors® and Natixis Investment Managers Solutions – US. Discretionary advisory services are generally provided with the assistance of model portfolio providers, some of which are affiliates of Natixis Investment Managers, LLC.