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.