Advisors’ portfolios are loaded up with risk as stock and bond funds reach for returns, a BlackRock executive said.

“This is the challenge we see in portfolios—valuations are high in an aging bull market, and portfolios are positioned very aggressively,” said Mark Peterson, director of investment strategy and education for BlackRock, speaking Friday before advisors at TD Ameritrade Institutional’s annual conference in San Diego.

Best known for its money management, BlackRock also provides risk analytics for many institutional clients and has found frighteningly high levels of risk embedded in most portfolios.

Some 76 percent of stock and bond funds, including ETFs, are riskier than their underlying indexes and benchmarks, Peterson said. Ten years ago, 46 percent of stock funds had more risk, and 60 percent of bond funds were riskier.

“For bonds, that made sense” a decade ago, Peterson said, “with the Fed pushing down rates. But on the stock side, it made no sense to us” to see risk levels so high.

BlackRock has been surprised at the levels of risk and is advising clients to scale back risk by using strategies such as dividend growth, low volatility, global flexible and some safer multiasset funds for equity exposure, and intermediate-term taxable and municipal bonds on the fixed-income side.

Diversification alone won’t do the trick, Peterson said, as the benefits of a broad mix have eroded over time.

In 1991, the up/down capture percentages for a basic style-box equity portfolio (30 percent large cap value, 30 percent large cap growth, 30 percent international and 10 percent small cap) captured 89 percent of the S&P 500’s upside and only 77 percent of the downside. Today, though, the ratio is an unhealthy 101/109.

“We’ve lost a lot of the diversification benefit,” Peterson said, “especially for that downside piece.”

Limiting risk capture is even more important for riskier asset classes, like international stocks and emerging markets, he said.

And advisors should be aware of some risk traps. REITs are one such hazard. In 1991, REITs captured half of the market downside, now they’re at 124 percent. “They’re more like emerging market stocks,” Peterson said.

BlackRock has also looked at multiasset funds and found unexpected risk levels.

‘We looked at all multiasset class funds that yield more than four percent, and they had 56 percent upside capture, but 77 percent of the downside,” Peterson said, which doesn’t work over a market cycle.

BlackRock figures the “sweet spot” for superior returns with less risk is about 73/73, based on data from September 2000 through September 2016, and about 89/89 going back to 1926.

Clients, of course, need to buy into what might look like a boring mix. The key is showing how they make more money in the long term by minimizing the downside, Peterson said, and ending what he calls the “S&P envy” that investors experience when they see their lower-risk portfolios underperform in a rising market.

This article was provided by Bloomberg News.