After the last significant market downturn a decade ago, dozens of asset managers went out of business. For firms that were able to sidestep the sell-off, “we didn’t lose as much as the market” became a strong selling point to burned investors during the recovery.
For those funds that turned a profit during the crisis, never was there a better time to raise money.
We are now in nine years into a market rally, and systematic, evidenced-based asset allocation has replaced some of the star manager culture and performance chasing of decades past. Robo-advisors are growing at breakneck speed, and more investors are focused on their greater financial picture than on individual stocks or funds. I even posited last week that Amazon would likely make a foray into wealth management at some point.
But new technology and data entering the financial advice space do not entirely replace human emotion. The way investors choose managers might have changed, but the psychology of winning – and firms’ marketing of that winning – has not. Especially after bouts of market volatility.
True to form, last Friday, BlackRock ran the numbers and posted its findings on Harvest: Real volatility arrives: how did advisor models perform?
After analyzing 6,500 advisor models, BlackRock determined that the short answer was “pretty well," with 70% of models outperforming their benchmarks from January 29 through February 8, the dates that bookended a 10% correction in US stocks.
But just because model portfolios outperform some indexes doesn’t mean investors are out of the woods. BlackRock cautions:
Advisors shouldn’t allow a moment like this to create a false sense of security. When the bull market turns into a bear, or when corrections play out over longer periods of time, the fundamentals that underpin proper diversification will come to the fore, and every investor’s portfolio construction techniques will truly be tested.
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A month ago, I noted that right before the market correction, Harvest readers were searching our platform for content on “cash” and “fixed income.” Are our readers simply smarter and sought to take chips off the table before one of the quickest corrections in history? I’d like to think so, but that conclusion misses the broader point: Fund managers can only market cherry-picked performance so much and for so long.
The best asset managers are now also prolific publishers. Quarterly updates seem entirely antiquated at this point. Content is ubiquitous in our lives, and customers of asset managers want to know what their charges are thinking in near real-time. Managers foster "sticky money" through constant communication, not outperformance.
By this logic, it’s no surprise that BlackRock is the world’s largest asset manager, as the firm is one of the most frequent publishers on Harvest and elsewhere. That said, let's hope their asset allocation models hold up during the next correction.