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Advisors will face challenges in finding alpha and consistent returns with the stock market at its highest point, high valuations, low interest rates and tight credit spreads. The ability to be more strategic – making the right timing, overweighting, or underweighting decisions – is going to be a greater role in achieving long-term investment goals.
Advisors might be able to successfully navigate this environment by using managed portfolios. Macro view: Managed portfolios offer multi-asset and diversified global portfolios that allow advisors to access asset classes they might not have the ability to invest in, or that are more niche, such as commodities, emerging market debt and REITs. Managed portfolios are also dynamic, as they can include both strategic and tactical positioning. Advisors can be proactive and capture more upside when there is risk, but also protect when there is less risk.
Given current market conditions, it is crucial to have a solid risk management plan. Advisors need to be able provide consistent results for clients and ease the ride through volatile markets. Managed portfolios provide a consistent, repeatable, and transparent way to manage such investment risk.
The way clients interact with advisors has also changed. While some clients may still require custom portfolios for their financial planning, many are now rethinking their long term financial plan and looking for someone who understands their family’s unique needs. They might be looking to have a conversation with someone about their goals or just to keep them on track. These are extremely valuable, but time-consuming activities. It is important to realize that advisors who use models spend approximately 10% of their time investing management activities. This compares to 16.2% for advisors who create models in their practice, and 19.4% for advisors who create custom portfolios for clients.* It’s important to recognize that advisors are still providing significant value by conducting due diligence on the portfolios and implementing them within the overall broader client portfolio.
Bottom line
Managed portfolios are a way for advisors to find new and better ways to increase value in an investment environment that may involve more frequent tactical shifts. They also allow for a deeper relationship between clients and advisors who are continually evolving their expectations and needs.
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*Source: Cerulli – U.S. Asset Allocation Model Portfolios Report, 2018.
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