Advisers are reluctant to use alternatives, according to Natixis, missing out on an excellent diversification opportunity.
The firm’s research into financial advisers’ model portfolios and the allocation decisions being made over the third quarter, showed that alternatives funds are primarily held in conservative and moderate portfolios, with 25 per cent and 16 per cent of average allocations, but little in aggressive portfolios, with just 6 per cent.
Analysis of 177 model portfolios from 59 firms across the UK between 1 July and 30 September found fund managers need to do more to help advisers and their clients understand the benefits of allocating to alternatives in portfolios.
Matthew Riley, head of research at Natixis, said from a diversification perspective, adding alternatives to a portfolio makes a huge amount of sense.
He said: “However, advisers should investigate alternative funds carefully when making selections – often those easiest to understand offer the least benefits.
“Most are choosing multi-alternative funds as their main non-property alternative vehicles when in fact they are in fact the most correlated of all alternative fund types to the wider portfolio.
“We think that advisers should consider all alternatives at their disposal, as there are some compelling arguments from a diversification perspective.”
Elsewhere, broader allocation trends showed that advisers cut fixed income allocations in conservative and moderate risk portfolios, amid continuing uncertainty over the timing of rate rises.
Natixis said the majority of reallocation from fixed income went to cautious allocation funds, perhaps reflecting the recognition that such funds can respond more quickly to changing market conditions.
ruth.gillbe@ft.com
