Financial Advisors Find Market Conditions Favor Active Managers, Particularly In High Yield Fixed Income: AB Survey

Nov 19, 2015, 12:39 ET from AB

NEW YORK, Nov. 19, 2015 /PRNewswire/ -- In today's market environment, characterized by low interest rates and low return expectations, a majority of financial advisors believe that now is the right time to increase their allocation to active investment strategies, according to a survey of more than 200 financial advisors conducted by AllianceBernstein ("AB") at the 2015 Annual Schwab IMPACT Conference in Boston from November 10-13, 2015.

While 72 percent of advisors reported that they currently use ETFs in client portfolios, nearly seven in 10 (68 percent) state that market conditions favor an active approach to asset management.  In particular, as concerns about the safety of high-yield ETFs continue to escalate, advisors are increasingly looking elsewhere to exposure to this asset class.  Nearly two-thirds (65 percent) of advisors either do not use high-yield ETFs or plan to decrease their exposure to these funds in the next year.

"More and more financial advisors are recognizing that if you're looking for long-term exposure to high yield, passive ETFs are a bad investment," said Gershon Distenfeld, Director of High Yield at AB. "The math speaks for itself: over the first nine months of the year, the two largest ETFs have sharply underperformed the average active manager, not to mention their own benchmarks. Being tied to an index means ETFs can't pick and choose their exposures to sectors or securities the way active managers can, and in less liquid asset classes like high yield, the average long-term investor really gets hurt going passive."

Financial advisors are also finding that liquidity risk can be easily misunderstood and mismanaged.  According to AB's latest survey results, nearly one-third (30 percent) of financial advisors feel they do not have a strong understanding of the liquidity issues impacting the fixed income market. 

Those who do understand the risks of liquidity indicate that it is the most significant cause of concern preventing greater adoption of high-yield ETFs in their portfolios.  Thirty-two percent of respondents cited liquidity issues as their biggest concern for investing in high-yield ETFs, followed by underperformance relative to actively managed fixed income funds (22 percent), complexity of the asset class (12 percent), hidden fees (4 percent) and another 30 percent cited a varying range of other challenges and issues.

"While the lack of liquidity in the market is clearly a risk, it can also provide an opportunity for additional returns to active managers that are able to stay out of crowed trades and keep cash on hand," said Ashish Shah, Head of Credit at AB. "Every financial advisor should be asking money managers what they are doing differently in this low liquidity environment – and the answer is clearly 'nothing' if you are using a passive strategy."

About the Survey

The survey was conducted onsite at the 2015 Schwab IMPACT conference with approximately 205 financial advisors and financial professionals being surveyed.

About AB

AB is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals and private wealth clients in major world markets.

As of September 30, 2015, AB Holding owned approximately 36.2% of the issued and outstanding AB Units and AXA, one of the largest global financial services organizations, owned an approximate 63.4% economic interest in AB.

Additional information about AB may be found on our website, www.abglobal.com.

SOURCE AB



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