Financial advisors need to do more than just focus on investing these days. That’s because holistic wealth management and financial planning have taken precedence as clients demand more from their advisors.
Yet, investment strategies remain a top priority for advisors and their clients. If advisors can’t produce solid returns for their clients, none of the other value-added services they provide resonate as strongly.
Here are 10 investment-related strategies and themes that made a mark with advisors this year:
Preferred shares, considered a hybrid security with both equity and fixed-income features, are controversial in today’s market, with arguments on both sides as to why advisors might want to consider them for clients’ portfolio.
Canada’s stocks account for barely more than 3 per cent of the global total, but it’s estimated they make up about 60 per cent of the average Canadian’s equities portfolio. In turn, that “home bias” is causing underperformance and increased volatility – and those negative effects could become even more acute in the years ahead. The good news for advisors is there are several ways to help their clients increase their global investments.
Investors seeking to profit from the cannabis boom might want to look to the United States, where legalization of marijuana is gaining momentum. Although marijuana still is an illicit substance federally in that country, 33 U.S. states have legalized medical cannabis – and Illinois will be 11th state to legalize recreational pot on Jan. 1, 2020.
Direct indexing, the next phase of portfolio customization, is gaining traction among some advisors and their high-net-worth clients. Although traditional index-tracking mutual funds or exchange-traded funds allow investors to buy all stocks in an index at once, direct indexing enables mass customization through the purchase of individual stocks. It’s appealing for investors looking to own an index, but not certain stocks in it.
Oil and gas stocks are plunging, while the focus on climate change keeps rising. That’s making advisors look to clean-energy investments increasingly for their clients. The task is to guide investors through a period of major change in energy, and one advisor recommends a strategic approach that addresses an investor’s financial goals and minimizes risk.
Advisors who have clients seeking to profit from the green gold rush may be unnerved by the volatility and rich valuations of cannabis stocks. Although licensed cannabis producers have been in the spotlight, riding this emerging industry also is possible by taking a “pick-and-shovel” strategy – that is, owning companies that provide goods or services to the cannabis industry.
Many Canadians want to invest in firms that are working actively to make the world a better place. That’s where “impact investing” comes in. A subset of responsible investing, impact investing seeks out companies with a stated intention to generate positive, measurable social and environmental impact alongside a financial return. It’s a trend that is on track to play a much larger role in the years ahead.
Investors may want to hit home runs when stocks rally, but the market’s tendency to throw curve balls is a reminder to play defence, too. Defensive stocks, which are less vulnerable in choppy markets or tough economic times, can be found in the health-care, utilities and consumer-staples sectors. These stocks could outperform the broader market during volatile conditions. They typically have stable earnings and pay a dividend, allowing investors to be paid while waiting for a rebound.
Diversification has long been considered a key tenet of a healthy investment portfolio. For advisors, are the strategies to reduce clients’ risk changing? One investment industry executive says the notion of a diversified portfolio goes well beyond the classic 60/40 split between equities and fixed-income securities. That’s especially true with more data, analytical tools and products now available.
Responsible investing (RI) is going mainstream as more investors come to understand the risks companies face by not improving their environmental, social and governance performance. To help investors wade through the growing number of RI-focused investments, we asked four portfolio managers in this space to for some of their top stock picks.