Asset AllocationJune 12, 2013

New Portfolio Construction: Not as Easy as it Looks

<em>Research from Natixis Global Asset Management finds investors are struggling to implement new investment strategies.</em>

Reported by Featured Author

(June 12, 2013) – Institutional investors want to adopt modern approaches to asset allocation, but a report has suggested they’re finding them harder to implement than expected.

More than half of the 500 decision makers questioned believed the old rules of investing were no longer effective, and 60% say traditional approaches to portfolio construction are outdated.

But 70% say setting strategic asset allocation is “challenging” and 74% admitted having difficulty in taking tactical advantage of market movements.

Natixis Global Asset Management, which carried out the survey, said the results showed further evolution was needed in asset allocation methodology to allow investors to build stronger portfolios that are able to withstand business, financial, and market cycles.

The report also asked which asset classes investors were planning to increase allocations to in the next 12 months.

More than half of investors (57%) plan to increase their allocation to global equities, and 48% plan to put more money into domestic stocks. Another 40% anticipate an increase to their emerging market equity positions.

Real estate was another popular choice, particularly in Germany, where 66% said they would add to their real estate holdings. Only British and Spanish investors planned not to increase their real estate allocations over the next three years.

Outflows are most likely from fixed income, where lower bond yields have hit investor confidence in the sector. Gold, other precious metals, and cash will also see money flow away from them in the next year, according to the report.

And the buzz around alternatives continues to gather apace–84% of investors already own alternative investments and 74% believe they are essential to diversify portfolio risk.

Alongside the real estate projections mentioned above, 36% plan to increase their exposure to private equity, 30% will increase their allocation to infrastructure, and 28% are looking to up their investments in alternative mutual funds.