The second-longest bull market may soon run out of miles and financial professionals are worried about how clients will react, according to a survey by Natixis Investment Managers.
Natixis, a global asset management firm headquartered in Paris, France and Boston, surveyed more than 2,000 financial services professionals across 16 countries and five continents. Wirehouse advisors, registered investment advisors and independent broker-dealers participated in the March survey.
The survey included questions about the market challenges financial services professionals are facing and market-volatility strategies they are using in client portfolios. The survey included 300 advisors in the U.S.
The report found that many advisors expect investors to make emotional investment decisions as the market becomes bearish. Advisors (46 percent) have already gotten a taste of their clients’ emotional responses to recent market fluctuations. Over 80 percent of advisors think that panic and emotion-driven decisions are a direct result of a long bull market where investors have become “complacent.”
Most advisors in the survey described their role in their clients’ lives as a life-event navigation helper, a guide for identifying and achieving life goals, a provider of ongoing financial education or someone helping them through emotional decisions. Nearly half (41 percent) described themselves as someone who would help with mediating family financial affairs.
Natixis said advisors are using active management and alternative investments to help clients prepare for volatility ahead. Eighty-three percent of professionals said risks in the market lead to an environment that favors active management. In fact, professionals are allocating most assets to active management strategies, reported Natixis.
Natixis’s 2016 survey showed professionals allocated more than 60 percent of assets to active management and a little over 30 percent to passive ones. Those participants predicted that in three years they would reallocate assets to 43 percent passive and 57 percent active. Instead, participants reported that they have increased asset allocations in active strategies by 1 percent.
Following a move toward active management, 80 percent of respondents are recommending alternatives to clients because of their capability to moderate volatility, produce alpha and generate stable income, said Natixis. Of those respondents, 50 percent are recommending real estate investment trusts, with smaller percentages suggesting real assets, commodities, infrastructure and hedge-fund strategies.
Among the 80 percent, Natixis said advisors are keen on liquid alternative strategies. Forty-seven percent of advisors mentioned multi-alternative and 46 percent cited global tactical asset allocation as appropriate alternatives for diversification. To reduce risk, respondents told Natixis, 32 percent cited market-neutral alternatives followed by 20 percent who named long-short equity and 19 percent who named long-short credit.
The report stated that respondents' desire to increase their assets under management by 14 percent within a year, but they foresee roadblocks, such as fallout from a short-term interest rate increase and bubbles on the verge of popping.