Equities Accounted For Two-Thirds Of Portfolio Losses In 2018 [Natixis Study] – ValueWalk Premium

Equities Accounted For Two-Thirds Of Portfolio Losses In 2018 [Natixis Study]

Tumbling equity markets across the board contributed to nearly 5% of the losses investors saw in their portfolios in 2018, and losses weren’t mitigated by fixed income investments, according to the annual Global Portfolio Barometer published today by Natixis’ Portfolio Research and Consulting Group.

Q4 hedge fund letters, conference, scoops etc

The Global Portfolio Barometer offers insights into asset allocation decisions from across the world. The report outlines the analysis of 421 “moderate-risk” model portfolios in seven regions, including the US, France, Germany, Italy, Latin America, Spain and the United Kingdom.

Among the key findings:

  • US investors’ returns were most negatively affected by outsized equity exposure, with equity allocations greater than 50%.
  • Investment returns were negative in every market and nearly every asset class in 2018, a marked contrast to 2017 when all regions reported positive performance.
  • Italian investors, with the most conservative equity allocations among the nations studied, were rewarded with the least-negative performance (-3.2% on average). The worst performer was Spain with an estimated loss of 5.9%.
  • Fixed income did not mitigate losses and contributed negatively to portfolios in all regions except France.
  • The most-diversified portfolios had lower risk and higher returns than the least-diversified portfolios.

Reversal of Fortune: Equities Accounted for Two-Thirds of Portfolio Losses in 2018 after Driving 2017 Gains, Finds Natixis Global Portfolio Barometer

  • Investment returns were negative around the world in every market and nearly every asset class studied, with steepest losses coming from stocks.
  • The most-diversified portfolios had lower risk and higher returns than the least-diversified portfolios.
  • Huge international disparity was found in asset allocations used to construct moderate-risk port­folios, with equity allocations ranging from greater than 50% in the UK and US to 20% in Italy.
  • Italy was the best-performing region, Spain was the worst; US investors were most negatively affected by outsized equity exposure.

BOSTON, Feb. 6, 2019 – Global equity markets fell across the board in 2018, contributing to roughly two-thirds of the losses investors saw in their portfolios during the year, and losses weren’t mitigated by fixed income, according to the annual Global Portfolio Barometer published today by Natixis Investment Managers’ Portfolio Research and Consulting Group (PRCG). Investment returns were negative in every market and nearly every asset class.

Natixis analyzed “moderate-risk” or “balanced” model portfolios in seven nations and regions, including France, Germany, Italy, Latin America, Spain, the United Kingdom and the US. Italian investors, with the most conservative equity allocations among the nations studied, were rewarded with the least-negative performance (-3.2% on average) followed by Latin America (-4.4%), UK (-4.2%), France (‑4.9%), US (-5.1%), Germany (-5.4%) and Spain (-5.9%).


2018 moderate risk peer group return contributions by asset class.

For US investors, their largest equity allocation to US equities was one of the “least-bad” markets in 2018, faring better than most major equity markets. However, US investors’ second-largest allocation to global equities (ex-US) performed far worse, declining 14% for the year. The negative performance impact from US and global stocks, combined, meant that the falling equity markets hurt US investors the most compared to international peers.

“Volatility returned in 2018 and portfolio risk levels were substantially higher. At the same time, signs of an end to the long bull market began to materialize,” said Marina Gross, Executive Vice President of Natixis’ Portfolio Research and Consulting Group. “In a complete reversal of fortune, moderate-risk portfolios that saw double-digit gains aided by overweight allocations to equities in 2017 suffered grave losses due to overexposure to the same asset class in 2018. Moving forward, it is more important now than ever for investors to consider increasing risk-mitigating investments to reduce market exposure.”

Risk Doesn’t Translate Internationally in Portfolio Construction

Natixis found significant differences in asset allocations among moderate-risk model portfolios in different countries, meaning investors with similar risk tolerances might get completely different portfolios and risk exposure depending on where they live. Moderate-risk portfolios in the UK and US were most bullish, with equity weights in portfolios over 50%, whereas Italians allocated just 23% to equities. In Italy and Latin America, around 40% of moderate portfolios were allocated to fixed income, compared to 20% in the UK and France. According to the Natixis analysis, the different ways regional advisors assigned their equity allocation was just as important as the performance of individual equity markets.

For instance, advisors in France, Germany and Spain allocated a large proportion of their clients’ equity exposure to broad European markets and less to global and US equities. With European equities underperforming US equities by 10% and global equities by 5% (EUR), this caused European equities to have the largest negative impact on performance. Natixis found that the negative impact of equities represented 3%–5% in losses on average.

Truly Diversified Portfolios Fare Better

It is notable that fixed income allocations did not help to mitigate losses and contributed negatively to portfolios in all regions except France. While fixed income markets began to contribute positively to returns toward the end of the year, it was a case of too little, too late as the magnitude of the losses from equities was too great to be offset by other asset classes. The same was true for alternative strategies, which offered only slightly positive contributions.

However, Natixis research still shows that diversification still plays an important role in portfolio construction. When Natixis computed the diversification benefit[1] of all the portfolios in the 2018 sample, the analysis found a strong negative correlation with portfolio risk and a moderate positive correlation with returns. The most-diversified portfolios had lower risk and higher returns than the least-diversified portfolios, demonstrating the important contributions that sound diversification provides.

In previous PRCG research, Natixis has shown that the most diversifying strategies are market-neutral, managed futures, global macro and long volatility. Many of these strategies performed positively in 2018, but investors either did not own these strategies at all or did not own enough of them to make a difference in their portfolios.

Global Portfolio Trends

  • United States: Broad allocations changed little from the end of 2017. In equities, investors increased exposure to US large caps, and reduced exposure to international developed. Alternatives remained in line with 2017 weights except for a shift from managed futures to option writing strategies.
  • France: Investors reduced their allocation to multi-asset flexible funds on the back of poor performance throughout 2018. Investors in France have since been turning to absolute return fixed income strategies to diversify away from traditional fixed income and equities.
  • United Kingdom: The only allocation change was a small reallocation from multi-strategy alternatives to other asset classes. Investors may be waiting for clarity on the Brexit process before deciding on other allocation changes.
  • Italy: There was a large shift back into fixed income, in particular to European fixed income, while investors reduced positions in multi-asset funds. Italian government bonds also appeared in portfolios once again.
  • Latin America: Investors’ aversion to equity risk was stronger than their fear of rising rates as there was an overall shift from equity to fixed income, specifically global, emerging market and US fixed income categories.
  • Germany: Alternative strategies saw strong demand in 2018, especially absolute return bond funds to generate return in a low-rate environment. Exposure to alternatives is now close to that of multi-asset funds.
  • Spain: The main change investors made in 2018 was a decrease in higher risk fixed income and conservative multi-asset funds.


Average allocations across global portfolios – moderate risk (number in brackets refers to portfolios).


All figures, unless otherwise stated, are derived from detailed analysis conducted by the Portfolio Research & Consulting Group of 421 moderate-risk model portfolios received in the last six months of 2018 across seven different locations worldwide: France, Germany, Italy, Latin America (including US-Offshore), Spain, the UK and the US. Peer group allocations shown are the averages calculated across all the models in the sample for each region. The performance data covers 1 Jan–31 Dec 2018 unless otherwise stated. Except for Spain, the Moderate Model Portfolios data is based on model portfolios that have been analyzed by the Portfolio Research & Consulting Group and have been designated as moderate-risk by investment professionals. The Portfolio Research & Consulting Group collects portfolio data and aggregates it in accordance with the peer group portfolio category that is assigned to an individual portfolio by the investment professionals. The categorization of individual portfolios is not determined by Natixis Investment Managers, as Natixis’ role is solely as an aggregator of the pre-categorized portfolios.

Data for Spain is derived from VDOS data. Our sample includes all moderate-risk allocation portfolios having fund weights 70%–100% of total assets, with these weights rebalanced to 100%. Statistics based on weight, returns and return contributions are derived from holdings of portfolios extant in Q3 2018 (the latest data available) and simulated over the period 1 Jan–31 Dec 2018.

Please note that risk attributes of portfolios will change over time due to movements in the capital markets. Portfolio allocations provided to Natixis are static in nature, and subsequent changes in an investment professional’s portfolio allocations may not be reflected in the current data.

About the Portfolio Research & Consulting Group

Natixis Portfolio Clarity® is the portfolio consulting service of Natixis Investment Managers. Specialized consultants provide objective portfolio analysis to investment professionals who seek a deeper level of insight, using sophisticated analytical tools to identify and quantify sources of risk and return.

For more information, visit im.natixis.com/us/natixis-portfolio-clarity.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of September 2018. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. There can be no assurance that developments will transpire as forecast, and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside sources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice.


Investing involves risk, including the risk of loss. Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager. Alternative investments involve unique risks that may be different from those associated with traditional investments, including illiquidity and the potential for amplified losses or gains. Investors should fully understand the risks associated with any investment prior to investing. Diversification does not guarantee a profit or protect against a loss.

About Natixis Investment Managers

Natixis Investment Managers serves financial professionals with more insightful ways to construct portfolios. Powered by the expertise of 27 specialized investment managers globally, we apply Active Thinking® to deliver proactive solutions that help clients pursue better outcomes in all markets. Natixis ranks among the world’s largest asset management firms2 with nearly $1 trillion assets under management3 ($999.5 billion / €860.6 billion AUM).

Headquartered in Paris and Boston, Natixis Investment Managers is a subsidiary of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Investment Managers’ affiliated investment management firms and distribution and service groups include Active Index Advisors®;4 AEW; AlphaSimplex Group; Axeltis; Darius Capital Partners; DNCA Investments;5 Dorval Asset Management;6 Gateway Investment Advisers; H2O Asset Management;6 Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Managed Portfolio Advisors®;4 McDonnell Investment Management; Mirova;7 MV Credit; Ossiam; Ostrum Asset Management; Seeyond;7 Vaughan Nelson Investment Management; Vega Investment Managers; and Natixis Private Equity Division, which includes Seventure Partners, Naxicap Partners, Alliance Entreprendre, Euro Private Equity, Caspian Private Equity8 and Eagle Asia Partners. Not all offerings available in all jurisdictions. For additional information, please visit the company’s website at im.natixis.com | LinkedIn: linkedin.com/company/natixis-investment-managers.

Natixis Investment Managers includes all of the investment management and distribution entities affiliated with Natixis Distribution, L.P. and Natixis Investment Managers S.A.

Natixis Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.

2 Cerulli Quantitative Update: Global Markets 2018 ranked Natixis Investment Managers as the 16th largest asset manager in the world based on assets under management as of December 31, 2017.

3 Net asset value as of September 30, 2018. Assets under management (“AUM”), as reported, may include notional assets, assets serviced, gross assets and other types of non-regulatory AUM.

4 A division of Natixis Advisors, L.P.

5 A brand of DNCA Finance.

6 A subsidiary of Ostrum Asset Management.

7 Operated in the U.S. through Ostrum Asset Management U.S., LLC.

8 Caspian Private Equity is a joint venture between Natixis Investment Managers, L.P. and Caspian Management Holdings, LLC.​

[1] Natixis PRCG defines diversification benefit = Equities

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