Retail Survey, France.

• French investors seem to overestimate the benefits of passive index funds in a portfolio
• The great majority of investors seek new strategies to diversify their portfolios and help insulate them from market shocks
• Investors identify the risk of recession in France, the global growth slowdown and geopolitical tensions as the main financial threats
• Investors want more personalised advice
• Socially responsible investment is of growing interest among investors

Individual investors around the world appear to have a tendency to overestimate the benefits of passive management within their portfolios:

-    60% of French investors think that index funds and ETFs are less risky

-    58% think that using them will help to minimise losses

-    54% think that they offer enhanced diversification

-    56% think that they provide access to the best investment opportunities

However, these figures contrast with the recent surveys carried out by Natixis Global Asset Management – among institutional investors and financial advisors – which revealed that professionals favour active management to take advantage of market movements, generate alpha and provide better risk-adjusted returns over the long term, while viewing passive investing primarily as a way to save on management fees¹. These differences of perception point to the challenges and the contradictions that private investors face.  

"It is crucial for investors to understand the risks inherent in their portfolio and identify the sources of diversification. It is surprising to see them tend to assign benefits to index funds that they do not always have, particularly in terms of risk control,” explains Christophe Point, Managing Director of Natixis Global AM Distribution France, French-speaking Switzerland and Monaco.

"Index funds have a place in portfolios, but their low cost seems to be providing a halo effect that could blind-side investors during volatile markets and affect their portfolio performance over the long term,” said Point

Investors seeking more diversification and better risk control

The survey also highlights investors' desire for find new investment approaches better suited to today’s financial markets. To this extent, 66% of French investors believe that the traditional equities/bonds approach no longer meets their needs. Moreover, 72% of them are looking for strategies that are less tied to broad markets and 76% want more diversification in their portfolios, which would seem to pave the way for wider use of alternative investments.

Although 42% of French investors say they have not yet used alternative asset classes in their portfolios (including hedge funds, managed futures, private equity, real estate, absolute return and long-short strategies), 52% say they have discussed alternatives with their financial advisor – a marked increase from 43% last year¹. French investors are increasingly aware of the need to diversify their investments and they are becoming more open to new strategies. In addition, 44% of French investors say that learning more about financial markets would help them reach their investment objectives.

“This reminds us that the financial industry as a whole has an important role to play in terms of financial education in order to help investors make smart long-term decisions,” says Christophe Point. “It is encouraging to see that investors are looking for new investment models to build more resilient portfolios, especially during periods of increased volatility. Alternative – or uncorrelated – strategies may indeed offer a powerful lever for diversification and be a driver of performance, depending on the proposed investment period,” explains Christophe Point.

Investors thinking long-term

Investors expect macroeconomic conditions and outside events to cause increased volatility over the next 12 months. While American investors obviously mention the presidential elections as a potential risk, French investors highlight the following:

-    Recession in France (34%)

-    Global economic slowdown (31%)

-    Geopolitical events (31%)

-    Interest rate levels (30%)

-    Oil prices (27%)

But despite these concerns, 66% of French investors believe their portfolios are protected against potential financial shocks in the next twelve months, and 50% maintain that these market shocks will not affect their long-term investment strategy. 58% of French investors say that long-term growth is more important than short-term gains.

Investors want personalised advice

According to the survey, 74% of French investors say they benefit from financial advice. A majority (54%) say they rely on the services of a financial advisor, while 10% rely solely on the services of robo advisors and 10% use both personal and robo advisors.

More than two out of three (68%) of French investors believe financial advisors provide added value, and an even greater 78% say investors who use financial advisors are more likely to reach their financial objectives.

Beyond investment performance, the top things investors most value from a financial advisor:

-      Help setting their goals and establishing long-term personal financial plans (40%)

-      Help taking more informed decisions concerning their investments (30%)

-      Receiving personalised advice in volatile and uncertain markets (32%)

Socially responsible investment is of growing interest to French investors, who are thinking of more than just financial return: 73% believe that it is important for investments to have a positive social impact and reflect their personal beliefs, and 71% say that investing in ethical companies is a priority.

“Investors are fully aware of the need to enlist the help of a financial advisor and by ‘help’ they mean far more than just an investment recommendation,” explains Christophe Point. "At a time when investors are asking for more personal support and better information to make smart investment decisions – that are truly in line with their long-term objectives – the role of the financial advisor is crucial.”

The challenge is to help investors define a personal financial plan that is better suited to today’s complex markets using uncorrelated strategies to build a more diversified and durable portfolio,” concludes Christophe Point.