Anticipating potentially volatile market conditions, investment advisors continued to diversify their portfolios in the third quarter, Natixis Global Asset Management reported Thursday.
An analysis of advisors' moderate-risk model portfolios found increased use of strategies with lower correlation to industry benchmarks and a move to alternative investments that prioritize risk mitigation over return enhancement.
According to the latest Natixis Portfolio Clarity U.S. Trends Report, the diversification benefit, which measures the percentage of risk diversified away by lower correlations, climbed to an average of 19.2% in the third quarter.
The report is based on a review by the Natixis consultant team of the asset allocations and performance of 306 moderate model portfolios submitted by U.S. financial advisors between April 1 and Sept. 30.
Diversification Trends
The review found several other diversification trends.
For one, use of beta strategies doubled since 2013, with 52% of advisors deploying them in their moderate-risk portfolios. At the end of the third quarter, the average portfolio had 9.8% of its assets in indexes based on factors other than market capitalization.
This accounted for 45% of passive portfolio allocations in the quarter.
In addition, managed futures accounted for more than a third of allocations to alternatives, making it the most popular alternative strategy. Use of option-writing strategies also increased.
However, exposure to long/short equity strategies and multi-alternatives declined. Natixis said this reflected the larger trend toward alternatives for risk-reducing benefits.
The review found that portfolios with at least 10% allocated to alternatives continued to deliver better risk-adjusted returns a majority of the time, compared with portfolios lacking an alternative allocation.
