As high levels of uncertainty and volatility continue to ripple across global markets, financial advisors are taking a close look at their investment strategies and allocations. Some are feeling pressure from clients to make more dramatic portfolio changes, largely given negative performance across equities, bonds and alternatives for the quarter and for this year.

Fight the bias to action

New research from the Addepar platform reveals important insights from high-net-worth (HNW) investor data. This capital is often regarded as ‘smart money’ or ‘patient capital’ for good reason. Despite fluctuating market conditions, HNW investors appear to be taking much more of a long-term perspective on the markets than retail investors. These sophisticated investors recognize how they have benefitted over the last decade from historically outsized performance. 

Continuing to invest for the future

We identify these types of trends by tracking investment flows — where money is moving and when —  which offers important insights into the decision-making processes of sophisticated investors. You and your clients can benefit from those insights.

So what are we seeing? The 2022 drawdown follows a number of years of strong performance. Although cumulative performance has recently declined, remember this: performance on an absolute and risk-adjusted basis over the last 10 years continues to be significantly higher than the long-term average. A buy-and-hold strategy with a long-term outlook has continued to outperform historical norms. 

HNW investors are largely sticking with their investment strategies during these tumultuous times, with only modest outflows from risky assets into cash. In contrast, the larger outflows out of risky assets are attributed to smaller portfolios.

Stay the course

Since 2016, allocations to cash and fixed income across the Addepar platform have each increased modestly by 2% while equities decreased by 2%. In fact, asset allocations across the Addepar platform have never moved more than 3% above or below their long-term average – and remain centered around long-term trends. Flows out of risky assets corroborate this picture. Meanwhile, private equity and venture capital opportunities are being seen as good long-term investments.

These long-term trends may be surprising to some given frequently dire headlines. Yet the data is clear: "smart money" portfolios are not making radical changes and are certainly not following sensationalist news.

Data-driven insights help calm clients

The lesson is this: it’s important to keep in mind a long-term perspective while balancing your clients’ diverse needs and risk profiles – especially if you are considering making significant changes to portfolios during periods of heightened volatility. Peer analytics can help you make more informed portfolio decisions, particularly in challenging markets. 

Addepar is a software and data platform that is purpose-built for professional wealth, investment and asset management firms to deliver outstanding results for their clients. We’re helping our clients unlock the power and possibility of more informed, data-driven investing and advice. Our platform was created to empower investment managers to make data-driven and more confident investment decisions, and to clearly see how assets are performing and where they might be exposed. Most recently, we’ve expanded our capabilities to include Navigator for scenario modeling and AdvisorPeak Trading & Rebalancing to address portfolio drift.

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