100% Alternatives in Your Portfolio. Why Not?

By Mike McLaughlin | Asset Management, Hedge Funds, Marketing | May 14th, 2012

Third in a series of posts about marketing alternative investment vehicles to financial advisors. Click to read Part I and Part II.

What’s a reasonable allocation to alternative investments within a portfolio? Most everyone agrees “more than 0%” is true. After that? Things get foggy.

For an asset manager marketing alternative vehicles, the allocation issue is important. Not only do many advisors struggle to understand alternatives in the first place, but they also have a lot of uncertainty when it comes to implementation.

I started with a simple review of the allocations firms use in materials that introduce alternatives:

  • BlackRock’s Investing for a New World sets the initial bar at 15%.
  • A Guggeheim (Rydex | SGI) tool implies that the answer is somewhere up to 30%.
  • A similar Altegris tool goes further, showing that a 50% alts allocation may improve results.
  • Raymond James highlights endowments’ 40% allocation to alts, then quickly notes that this is “too high for the majority of individual investors”.

From Raymond James overview of alternative investments.

To complicate things, consider yet another tool offered by Hatteras Funds, and what happens if you select a portfolio that is 100% alternatives (the Model Portfolio below):

In this tool from Hatteras, a 100%-alternative portfolio provides the best results.

Now an appropriate answer for allocating to alternative strategies is not just 15%, 30%, or even 50%. Here, a portfolio of 100% alts is the right choice. Confronted with this, advisors or investors are asking: what should I do?

Clearly there’s a lack of consensus. By itself, this lack of consensus is no big deal. After all, the goal isn’t for all firms to have the same perspective on alternative allocations.

The real problem is that firms only provide allocation guidelines implicitly. In the examples above, no rationale or explanation accompanies the percentages of assets that can (or should be) invested in alts. The data does the talking, and it gives a pretty vague (“more than 0%”) message.

I see two paths for firms in resolving this issue:

  • Punt on allocation, making it clear that alts have a role and the advisor is in the best position to decide what exposure is best for clients.
  • Build a concrete case for a baseline allocation, including the necessary caveats that one-size-does-NOT-fit-all.

Either approach can work, with the key being that the messaging is explicit. Not only will this close a confusing gap in alternatives marketing, but it will help make it clear that providers have a strong grasp on how their products should be deployed.

Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing | May 14th, 2012

In a week that began with a new French leader and ended with a $2B  headlines, the industry blogs covered a numerous topics. We thought two blogs were particularly interesting.

  • BlackRock – The author tests the adage sell in May and go away in this post.
  • Putnam – This post builds on DALBAR research indicating equity investors under-perform the market because they churn too much. Interesting topic for any FA speaking with jittery clients.

Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing | May 7th, 2012

This week we have three posts from two firms.

  • BlackRock – Think you can isolate from China, think again. This post discusses who an improving Chinese economy is good for the entire world.
  • BlackRock – This interesting post is a Q&A on the affect gender has on selecting and working with financial advisors.
  • Wells Fargo – Also a Q&A, this post shares some of the underlying drivers to today’s fixed income market.

 

Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing, Sales | April 30th, 2012

From last week’s blogs, I gleaned very interesting posts in different areas of asset management

BlackRock – In this post, Sue continues the walk-through of her FA search. I think understanding her process can be exceptionally helpful to any FA looking to increase their client base.

Russell – This post walks through investing with respect to political change. I feel like I’ve already read too many posts about the upcoming election and dramatic impact everyone should expect. Natalie does an excellent job of calming the waters and maintaining a longer time horizon.

 

Comments are off for this post Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing | April 23rd, 2012

Four interesting blogs taken from the 80+ blog entries posted over the last two weeks.

  • Columbia -This post supports the idea that the best-rewarded investors are the ones that avoid timing investments. From our FA proprietary research, we hear FAs say this theme comes up time and again.
  • Pioneer – We all like to know “worst case” scenarios. Well this post provides a succinct list of potential worst cases for the US economy. It’s such a strong post because the author reminds and enables advisors to discuss these topics with their clients. And those clients will appreciate knowing “worst case.”
  • Russell – This time of year, there’s a lot of tax-related blogging. This post provides a helpful chart and investing tie-in when contemplating the potential tax changes.
  • Wells Fargo – Gasoline. The TV talking heads, politicians, and economic pundits talk about gasoline prices too much. But this post provides logic (and two charts!) around what to consider if prices increase.

Comments are off for this post Leave a comment

Marketing Alternatives: The Importance of Education (Part II)

By Mike McLaughlin | Asset Management, Hedge Funds, Marketing | April 11th, 2012

Second in a series of posts about marketing alternative investment vehicles to financial advisors. Check out the first post here.

Last week I made the case for why educating advisors needs to be a focus for any investment manager attempting to market alternative investments.

Today I’ll make the case that I was wrong. And I’ll start, again, with a graphic:

from Rydex | SGI via getalts.com

The above is from Rydex | SGI’s getalts.com, and it communicates a nearly-identical message to the one from Natixis I referenced last week. Namely, that alternatives can enhance portfolio returns while reducing volatility.

This story sheds light on a major reason not to expend a lot of effort on educating advisors about alternatives: everyone is broadcasting a similar message. While often viewed as table stakes in messaging alternatives, the fact is that it’s very tough to stand out when it comes to the basic “Why Alternatives?” conversation.

Besides sameness, two other reasons support focusing efforts away from education:

  • Distribution partners will get more picky. Yes, distributors need help educating their FAs, but they’re also seeing an influx of similar materials. We’ve had a few managers tell us they’ve gotten lukewarm responses to educational offerings. I think that’s in part because there are many already out there. Not every firm can be a go-to resource for informing advisors.
  • Usage of alternatives is concentrated. This is the exact same statement I used to justify including education as a core marketing component – because so many FAs are dabblers. The converse, and also valid, view holds that there’s no point in focusing on the dabblers. Instead, flows to alternatives will come primarily from the 10-20% of FAs who are heavy users, at least for a while. And they are the ones that don’t need the education.

Given that most firms have limited marketing resources and a finite slice of advisors’ attention, it’s perfectly justifiable to focus on the proprietary aspects (e.g., firm, strategy specifics) of the alternative story at the expense of educational content.

Ultimately the importance of education when it comes to marketing alternative vehicles presents a tricky situation for firms. In the next post, I’ll address the mixed messages being provided on how alternatives should be used in clients’ portfolios.

Comments are off for this post Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing | April 9th, 2012

In this week’s post, we return to recommending three posts (we’ve only found 2 posts each of the last two weeks).

  • BlackRock – There’s so much inertia and discussion on seeking yield in today’s financial news, this post posits a case for exercising caution in that search.
  • Columbia – I think many FAs appreciate cause and effect commentary. Those commentaries facilitate easy discussions. James Carlen posts about the cause and effect related to higher oil prices and emerging markets.
  • Wells Fargo – This post shares a straightforward example and background on the cost of “fear.” While dense (Wells isn’t big on graphics or charts), it’s one of the better posts of 2012.

The “best blogs of the week” will be on spring break next week. We’ll be back on April 24th.

Comments are off for this post Leave a comment

Marketing Alternatives: The Importance of Education (Part I)

By Mike McLaughlin | Asset Management, Hedge Funds, Marketing | April 5th, 2012

First in a series of posts about marketing alternative investment vehicles to financial advisors.

My guess is that the graphic below is (conceptually, if not specifically) familiar to most investment management marketers:

from Natixis Global Asset Management via AdvisorPerspectives.com.

It’s a concise, data-driven way to illustrate the potential benefits of incorporating alternatives into portfolios, namely that alts can:

  • Enhance returns,
  • Reduce volatility, and
  • Improve downside protection

With $120+ billion in assets across nearly 350 mutual funds, the alternative push into the mainstream, specifically aimed at advisors, continues. And this type of educational content has become pervasive. The risk/return angle is often complemented by:

  • An introduction to the types of alternative investments
  • The importance of extending traditional asset class and strategy diversification

So let’s say you’re charged with marketing new alternative products. How important is selling and educating advisors on alternatives as an asset class? Should you expend significant effort on information that isn’t directly tied to your specific vehicle? How much education is necessary?

I see this is one of the toughest issues in marketing alternatives. The rationale for including educational content has three key points of support:

  • Education provides context. The why and how for including long-only, US large cap strategies in portfolios are fully-ingrained in advisors. But that same information is NOT secondhand knowledge for many FAs when it comes to alternatives.
  • Distributors want it. Large broker-dealers in particular have been asking for educational support for years. They realize it’s a long, effort-intensive process to get their advisors up to speed on how to effectively incorporate alternatives. And they’re more than happy to share that responsibility.
  • Most advisors are dabblers. According to Cogent Research, almost 80% of advisors use some type of alternative product. However, only 15% of FAs allocate more than 15% of client assets to alts. That means many advisors are simply dabblers at this stage, in part because they lack a complete grasp of how alts should be used.

Together I think those points form a strong case. And most firms agree, given their inclusion of educational content in alternative product marketing. That said, if I was launching a new product tomorrow, I’d at least consider skipping over the educational component in my marketing.

I’ll get to why that is next week.

Comments are off for this post Leave a comment

Interesting Ad Placement

By Anu Heda | Asset Management | April 3rd, 2012

This morning, I noticed this BlackRock ad (from my home computer no less) on ESPN. Interesting placement. (And no, I don’t normally look into spring training results. This was an extremely quiet morning.)

 

Comments are off for this post Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing | April 2nd, 2012

This week, similar to last week’s post, includes two posts. This time from different firms on very different topics.

  • Russell – This post provides a quick look back to investment returns from 1970 – 2000. The view is a potentially simple way to temper client investment expectations.
  • Wells Fargo – This post covers 4 myths of fixed-income investing with the myth – mythbuster paradigm. I find that paradigm punchy and enjoyable to read and imagine many FAs would as well.

Comments are off for this post Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing | March 26th, 2012

Not too many interesting blogs last week. We read two – both from Putnam – that were potentially helpful to FAs.

  • Putnam – This post proposes a clear reason to consider municipal bonds. There’s a solid measure of data to match the author’s logical process.
  • Putnam – This post is a 3 minute video that addresses what inflation might do and some learning from QE1 and QE2.

 

Comments are off for this post Leave a comment

A Reminder of What Technology Can Do

By Mike McLaughlin | Asset Management, Insurance, Marketing, Sales | March 22nd, 2012

A few weeks back, we presented at the MFEA Distribution Technology Summit in Tampa. Much of the discussion focused on the impact of mobile – Web sites, apps, CRM, advertising – on both asset managers and financial advisors. We’re biased, but it was a good day.

The last session was a panel of sales executives. Among the many issues the panel touched on was the idea of adoption – how much are advisors and wholesalers actively using mobile technology?

The sales executives provided a valuable reminder – there is a non-trivial subset of  advisors and wholesalers who will NOT embrace mobile. While technology can bolster execution and add a positive dynamic to relationships with advisors, it is not essential for everyone.

The reality is:

  • Many wholesalers and advisors have been successful for a very long time before mobile became important
  • Some wholesalers and advisors will always be inclined to avoid new technology

Image via Kevin Knight

It reminded me of a project we did a few years ago. We spent 20 days in the field with some of the most successful insurance producers in the country. As it turned out, two of these producers were complete technophobes. When I say complete, I mean they:

  • Did not have a computer or laptop in their offices
  • Did not carry a smartphone
  • Spent exactly zero minutes per day surfing the Web and using e-mail

And yet, both were HUGELY successful by any measure. In fact, these guys are in the top 0.2% of producers in terms of overall production. Similarly, some of the best wholesalers in the industry rely on zero cutting-edge technology. The MFEA panel discussion reminded me of this.

Technology in and of itself is not a solution, but part of a suite of resources that can make doing business easier. We need to avoid thinking that technology is universally transformational, that more of it is always going to help everyone.

Our collective excitement at the opportunities presented by technology needs to be coupled with an equal dose of pragmatism.

Comments are off for this post Leave a comment

The Return of the Microsite

By Anu Heda | Asset Management, Marketing | March 21st, 2012

In 2007, microsites were all the rage. Manager after manager was rushing to put out some clever vanity URL with select content. Slowly, they faded from the mainstream.

In 2012, they are back and with good reason. I’ll focus on two good reasons microsites are returning.

Read the rest of this entry »

Comments are off for this post Leave a comment

At Cost Cafe Experience

By Anu Heda | Asset Management, Marketing | March 20th, 2012

I visited the At Cost Cafe yesterday afternoon while it was parked west of Union Square in New York. The experience was fantastic. Hats off to Vanguard for trying something interesting and executing it very well.

Read the rest of this entry »

Comments are off for this post Leave a comment

Best Blogs of the Week

By Anu Heda | Asset Management, Marketing | March 19th, 2012

A big rally last week has the Dow well over 13,000 and firms blogging about it. We selected two interesting takes on the upswing and a post providing a framework on selecting technology investments.

  • Columbia – I enjoyed the way this post explains investing in technology stocks.
  • MFS – This post provides three reasons to be optimistic about the current equity market upswing.
  • Pioneer – The author provides an interesting way to look at the market performance. This post speaks well to the FA with still-nervous clients.

 

Comments are off for this post Leave a comment

« Older Entries