Displaying items by tag: allocation

According to data compiled in late December and early January by Devin McGinley, director of InvestmentNews Research, advisors are showing an increasing interest in alternative investments. McGinley’s survey of more than 200 advisors and financial professionals revealed that 43% of advisors plan to add exposure to at least one alternative asset class this year, while 46% anticipate increasing their average allocation to alternatives over the next three years. The survey also revealed that advisors said their average allocation to alternatives over the next three years is expected to rise to 15% from a current average of 12% of client portfolios. McGinley explained that an uncertain economic outlook and a recognition of the long-term benefits of diversification are driving the increasing appeal of alternatives. While it’s the responsibility of advisors to navigate client portfolios, McGinley is also seeing increasing pressure from investors. For instance, more than a third of advisors surveyed said they’ve had clients asking about alternative investments over the past six months. When discussing alternatives, the two biggest investor concerns were down markets and inflation. McGinley said that “Clients are asking about alternatives because they’re nervous.” More specifically, his research found that clients are asking about the following asset classes in order: real estate, gold, private equity, liquid alternatives, cryptocurrency, structured notes, and private debt.

Finsum: Based on recent research by InvestmentNews, advisors are showing an increasing interest in alternative investments due to client pressure, an uncertain economic outlook, and the long-term benefits of diversification. 

After struggling under deficits for two decades, pension funds are now flooded with cash due to soaring interest rates. The surplus at corporate defined-benefit plans means managers can now reallocate to bonds, which are less volatile than stocks. This is called “derisking” in the industry. Mike Schumacher, head of macro strategy at Wells Fargo, said the following in an interview, “The pensions are in good shape. They can now essentially immunize — take out the equities, move into bonds, and try to have assets match liabilities.” That explains some of the rallying of the bond market over the last three or four weeks.” Last year’s stock and bond market losses actually helped some benefit plans, whose future costs are a function of interest rates. When rates rise, their liabilities shrink and their funded status improves. For instance, the largest 100 US corporate pension plans now have an average funding ratio of about 110%. According to the Milliman 100 Pension Funding index, that’s the highest level in more than two decades and great news for fund managers who had to deal with low-interest rates and were forced to chase returns in the equity market. Now managers can unwind that imbalance with most banks expecting them to use the extra cash on buying bonds and selling stocks to buy more bonds.

Finsum: Due to stock and bond losses and rising rates, pension fund managers now have a surplus of funds that they plan on allocating to bonds. 

Alternative investment platform CAIS recently announced that a selection of Reverence Capital’s funds and education courses will be available to RIAs and independent broker-dealers on its platform. Reverence Capital Partners is a private investment firm focused on financial services-focused private equity and structured credit. Mercer will provide third-party due diligence on the funds. As part of the announcement, Milton Berlinski, managing partner at Reverence, stated, “Through our experience across asset and wealth management, we’ve seen the challenges associated with accessing and selecting quality private market products. CAIS is uniquely positioned to provide the technological and educational resources to help tackle these concerns.” The partnership is taking place during an opportune time as a recent CAIS/Mercer study found that approximately 88% of financial advisors intend to increase their allocations to alternative asset classes over the next two years. Matt Brown, founder and chief executive officer of CAIS added, “With allocations to alternatives expected to continue rising in 2023, we believe that adding additional quality alternative products on the CAIS Platform is essential to empowering advisors to gain confidence in meeting client expectations.” CAIS serves more than 7,400 advisory firms and teams overseeing a total of more than $3 trillion in assets. Reverence Capital has about $8 billion in assets under management.

Finsum:With more than 88% of advisors intending to increase their alternative allocations, a selection of Reverence Capital’s funds will now be available to RIAs and independent broker-dealers on CAIS’s alternative investment platform.

According to new survey data from SoFi, more than a third (37%) of investors said they made impulsive investment decisions due to heightened volatility in the market last year, with younger investors significantly more likely to do so. Out of the 1,000 investors surveyed by SoFi, 29% said they bought a lot of investments, 17% said they sold a lot of investments, and 55% did not buy or sell. While impulsive trading during heightened market volatility is normal, it’s exactly what financial experts say not to do as it can hurt your portfolio over the long run. Instead, investors should stick to their investment plan and stay the course. Joel Mittelman, president of Mittelman Wealth Management, previously told Money.com that “Ironically, during a period of extreme volatility is exactly when you need the discipline and structure of some investment plan. Unfortunately, that's often when people throw the plan in the garbage." Investors are often unsuccessful at predicting the market, so staying invested is typically the best way to optimize returns over the long term. Plus, when you stick to your plan, you won’t miss out on the eventual recovery.

Finsum: A recent survey by SoFi found that 37% of investors made impulsive decisions due to the heightened market volatility last year, the exact opposite experts recommend.

One of the big investment stories of 2022 was the failure of the 60/40 portfolio. Once a beacon of stability, the portfolio failed to provide safety last year as both the equity and fixed-income markets had negative returns. So, asset management firms are now suggesting higher alternative asset allocations to achieve greater diversification for investors. Daniel Maccarrone, co-head of global investment manager analysis at Morgan Stanley, said the following in research released by the firm, “Alternative strategies, such as those focused on hedge funds, private capital, and real assets, have long been appealing as a potential source of higher yields, lower volatility, and returns uncorrelated with stocks and bonds.” His research showed that adding alternative exposure to a portfolio may reduce volatility and potentially increase returns. Alternatives such as hedge funds, private debt, and real assets are less likely to be volatile since they are less subject to interest rate fluctuations. For instance, data from January 1, 1990, through December 31, 2021, showed that a portfolio of 40% stocks, 40% bonds, and 20% alternatives experienced annual portfolio volatility that was 88 basis points less than a 50% stock, 50% bond portfolio split. It also outperformed the 50-50 portfolio by 45 basis points annually.

Finsum:With the 60/40 portfolio failing to provide safety last year, asset management firms are recommending that investors include alternative allocations for diversification and lower portfolio volatility.