If there’s one adjustment financial advisors need to make to their client’s portfolios in 2016, it’s to include risky investments, such as alternatives, equities, emerging markets, credit and high-yield credit.

That’s according to Prudential fund managers who gathered yesterday at the Andaz Hotel on 5th Avenue at 41st Street in Manhattan for the firm’s 2016 Market & Economic Outlook.

“As people live longer and they have very low returns from cash or fixed income, having some risky assets like actively managed high-yield bonds and a certain percentage of stock or real estate will provide the growth people need in their income over time,” said Edward Keon, managing director and portfolio manager with Quantitative Management Associates (QMA), a Prudential business that offers equity and multi-asset class investments.

Advisors are hard pressed not to sidestep risky asset classes with the political unrest that persists, but taking the plunge can produce returns. Institutions that expected to allocate more than 25 percent to alternatives declined from 31 percent to 22 percent, according to Morningstar and Barron’s 2014-2015 Alternative Investment Survey.

“Don’t avoid risky assets to the detriment of overall returns, given the client’s investment horizons and goals they are trying to achieve,” said Peter Clark, managing director and portfolio specialist with Jennison Associates. “Look into alternatives that are hedge funds that have less correlation to the overall fund and equity play that people have traditionally invested in.”

Clark favors consumer discretionary, information technology and health-care stocks to create a well-diversified portfolio. “There are high levels of innovation in these industries,” Clark said. “Consumer discretionary companies are taking advantage wherever there is growth in the world and IT is capitalizing on social media.”

As for interest rates, the panel of managers agreed on lower for longer. “We can’t count on liquidity the way we have in the past, which has changed our trading strategy to be more fundamental,” said Michael Lillard, chief investment officer with Prudential Fixed Income. “We are moving to longer-term time horizons and buying bonds that we like and plan to hold for a long period of time. That’s the key to outperform in this low interest-rate environment.”

Because the volatility of stocks is expected to remain high in 2016, Keon recommends advisors keep cash in a client’s portfolio as an alternative to expensive VIX positions.  “If you’re nervous about taking undue risk, holding a year’s worth of income or expenses in cash won’t result in returns but it is one way to hedge the risk in a client’s portfolio,” said Keon.

Although fund managers are still shy of investing abroad, they are beginning to dip their toe into emerging markets as a way to diversify their portfolios.

“My area is emerging market equities,” said Rodolfo Martell, managing director with QMA. “At QMA, we prefer to have diversified portfolios with 200 to 250 stocks that don't deviate on aggregate more than 2 percent at the sector level from the benchmark. By doing this, we can capture the alpha opportunity present in emerging-market equities while reducing risk.”

Equity markets in developing countries are volatile. The benchmark emerging market equity index volatility from 1990 to today is an estimated 23 percent, according to Martell.

Despite that volatility, Lillard favors Mexican debt. “The Mexican government’s dependency on oil hovers at 30 percent, which explains the higher premium that its 10-year debt is collecting,” Lillard said.

In the first half of 2015, the total debt of a sample of 50 publicly listed companies had risen 22 percent year-over-year because of the Mexican peso’s decline against the dollar, according to an El Financiero study.

“An emerging market investment in Mexican debt can provide more efficient exposure to the underlying returns that investors are attracted to,” Martell told Financial Advisor magazine. “It can be a good vehicle to access emerging-market growth.”

Between 2015 and 2017, some $645 billion of non-financial corporate debt will mature in emerging markets, with U.S. dollar-denominated bonds accounting for around $108 billion, according to the Institute of International Finance.

Real estate is another helpful asset class for 2016 because it gives clients both income and exposure to growth.

“It’s easier for financial advisors to convince clients to hold real estate as opposed to emerging-market stocks,” Keon told Financial Advisor. “That could be REITs, mutual funds that own real estate or direct ownership.”