Nontraditional Investments Gain Traction to Generate Income

Financial advisers are more likely to recommend emerging markets and dividend-producing equities, given the current low-yield environment, a survey found.

Favored products include emerging market bond funds and dividend-paying equities for clients, according to a survey by OppeneheimerFunds Inc. The survey examined the investment challenges and opportunities advisers see when managing portfolios for increasingly risk-adverse clients.

Advisers said they were most likely to recommend nontraditional approaches to generate income to clients looking for investments in today’s low interest rate environment. A full 84% of those surveyed said they were more likely to recommend dividing-paying equities, and more than three-quarters (76%) cited a willingness to recommend emerging market bonds or related bond funds over other asset classes.

“Ongoing market volatility, low U.S. interest rates and the many challenges surrounding retirement, like rising health care costs and longer life expectancy, mean advisers are facing significant challenges positioning their clients’ portfolios for long-term success,” said Lori Heinel, chief investment strategist of OppenheimerFunds.

Half the advisers surveyed believe the best way to get emerging market equity exposure is through funds investing directly in emerging markets companies.  Another 26% are inclined to use funds that invest in companies domiciled in developed countries outside of the U.S., while 21% prefer funds investing in large global multinational U.S. companies. Just 3% of respondents said they don’t need emerging market equities exposure.




“We believe that emerging economies are the engines for future growth, and portfolios that are positioned to take advantage of that potential growth will likely benefit greatly,” Heinel said. “There are many ways to tap global potential–whether through funds that invest in U.S. companies with significant sales opportunities in new markets or through companies based directly on the ground in countries outside the U.S.–but either way, an adviser that finds portfolio managers with a global mindset and the ability to pick good companies will find potential for greater growth.”

Despite recognition that globalized investments are important in today’s portfolios, 43% of respondents have reduced exposure to international bonds, and 41% have reduced exposure to international equities since the Eurozone crisis began.

A majority of advisers (59%) cited the ongoing European sovereign debt crisis as the most important issue impacting financial advice. The presidential election was the second biggest factor (26%).

Compared with the same period last year, 59% of advisers are seeing clients become more risk adverse, with increased interest in fixed-income investments. Another 35% say risk tolerance levels are similar to what they were a year ago.

The OppenheimerFunds Financial Advisor Global Investment Survey was conducted between June 20 and 21 at the 2012 Morningstar Investment Conference in Chicago. Respondents were 107 attendees, including registered investment advisers (RIAs), financial advisers and other investment industry experts.