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Is the traditional 60/40 portfolio passé? For the past twenty years, stocks and bonds have largely been negatively correlated, providing solid diversification benefits to investors with balanced portfolios. But more recently we have begun to see positive correlations between the two asset classes. Now, financial advisors are increasingly looking to alternative assets—such as liquid alternative mutual funds, real estate investment trusts, private equity, private debt, private real estate and/or hedge funds—to manage risk and build diversified client portfolios that are prepared for potentially rocky markets.
PGIM Investments’ quarterly survey of nearly 400 financial advisors’ sheds light on their views and preferences when it comes to alternative investment solutions.
50% Of Advisors Use Alternatives in Client Portfolios, But Access Varies
Approximately 50% of advisors report using alternative investments in client portfolios, with 31% indicating they have access to a wide range of alternative investment options, and 19% citing limited access. The other half of advisors surveyed said they do not use alternative investments in client portfolios.
Portfolio Diversification Drives Alternatives Use
A majority (71%) of advisors view access to alternatives as important, citing reasons including the need for greater client portfolio diversification, for providing clients with institutional-quality products, and because clients rely on them to identify investment opportunities that they cannot find on their own. In contrast, 29% of advisors do not believe alternative investments are appropriate for their clients or consider them too risky.
Mutual Funds and ETFs are Advisors’ Preferred Alts Vehicles
Institutional investors have invested in alternatives for decades, but access for retail investors was limited. Over time, significant strides have been made in building out an infrastructure to serve this population, which now provides qualified retail investors meaningful access to alternatives. There are several ways advisors can access alternative investments and these options continue to evolve as asset managers bring these solutions downstream. PGIM’s survey found that advisors primarily prefer to access alternatives via mutual funds and ETFs, followed by closed-end funds and Master Feeder vehicles/Limited Partnerships.
PGIM is a global leader in alternative investments with approximately $253 billion in total alternative AUM.1 PGIM’s alternative capabilities encompass a broad range of strategies across the liquidity spectrum and public and private markets.
About the Survey
These survey questions were part of Escalent’s Cogent Beat™ Advisor data collection and included responses from a representative sample of 371 financial advisors. Data was collected between May 24 and June 7, 2021.
1 As of March 31, 2021. Alternative assets under management (AUM) by PGIM totals $253 billion. PGIM’s alternative AUM includes hedge fund, mezzanine and other private credit, real estate and infrastructure strategies across all PGIM businesses.
Investing involves risks. Some investments have more risk than others. The investment return and principal value will fluctuate and the investment, when sold, may be worth more or less than the original cost and it is possible to lose money. Past performance is not a guarantee of future results. Asset allocation and diversification do not assure a profit or protect against loss in declining markets.
PGIM, Inc. (PGIM) is a registered investment advisor and a Prudential Financial company. PGIM Investments LLC is a registered Investment adviser. © 2021 Prudential Financial, Inc. and its related entities. PGIM and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.
This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.
1052903-00001-00 Ed: 10/2021