Donald Trump’s victory in the 2016 presidential race pushed equity markets into a higher gear -- and the election also boosted flows into certain alternatives and smart beta strategies.
As they prepared for and reacted to the elections, advisors diversified portfolios to protect their clients from volatility, according to recent analysis from Boston-based Natixis Global Asset Management.
According to the Natixis Portfolio Clarity U.S. Trends Report released last week, advisors incorporated less-correlated assets and strategies like smart beta during the third quarter, prioritizing risk mitigation over return enhancement.
The use of smart beta has doubled since 2013, according to Natixis, with 52 percent of advisors now using smart beta strategies within their moderate-risk portfolios.
In the third quarter, the average portfolio had almost 10 percent of its assets in smart beta strategies, accounting for 45 percent of the passive portfolio allocations in the third quarter.
Advisors are also emphasizing lower-cost strategies -- according to the Natixis analysis, the average overall expense for portfolios declined to 69 basis points in the third quarter of 2016, down from 83 basis points in 2013.
As it compared portfolios based on expense ratios, Natixis questioned the trend towards lower costs, finding that higher expense portfolios outperformed lower expense portfolios 60 percent of the time over the past three years.
The average moderate risk portfolio allocated 53 percent of its assets to stocks and 30 percent to bonds during the third quarter. Natixis reports that 92 percent of the totaled measured portfolio risk was represented by a portfolio’s equity holdings, the highest proportion of risk since Natixis began recording this data in 2013.
The average moderate-risk model portfolios analyzed by Natixis gained 3.24 percent in the third quarter, compared to 0.46 for the Bloomberg Barclays U.S. Aggregate Bond Index, and to 3.85 percent for the S&P 500.
During the third quarter, portfolios that devoted significant allocations to portfolios performed better. Natixis’s analysis found that portfolios with at least 10 percent allocated to alternatives delivered better risk-adjusted returns than portfolios with no alternative allocation the majority of the time.