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Portfolio > ETFs > Broad Market

Where Do You Fit In?

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One of the greatest inventions introduced to cars in recent years is the GPS system–a miraculous device that lets you know where you are at all times. As for drivers, it’s important for advisors to have a sense of where they are, specifically where their market sentiments place them versus their peers. It’s valuable to know if your opinions on the market and the economy differ greatly from other advisors–professionals who likely have a similar business and knowledge base as you. This information provides an additional tool to help give you a sense of the market’s temperature and form more informed opinions.

Half Empty or Half Full?

In November 2004, we conducted a supplemental survey covering 450 advisor firms to capture your collective outlook on the market. A little more than half the advisors who responded said they are positive for the next three years, with 50% of those polled expecting a long-term secular bull market with cyclical rallies and dips, while a smaller group (6%) predicted a genuine bull market. About a third (31%) see a directionless market coming down the pike, while one in eight foresee a secular bear market.

While advisors are moderately optimistic about the market’s outlook, they are concerned about a few economic issues. The growing federal budget deficit topped their list, followed by Social Security underfunding, and rising energy prices. Other hot topics–the trade deficit and the U.S. dollar decline–were reasons for caution among about one in 10 advisors.

The information gleaned from our survey in early winter is supplemented each month by the Advisor Confidence Index, which was created in March 2004. Inspired by the Consumer Confidence Index, the Rydex Advisor Confidence Index captures the sentiments of 150 independent RIAs each month. Participating advisors answer four multiple-choice questions, reflecting their views on the economy and the stock market, and their answers are encapsulated into a single index number. The change in the index’s value from the preceding month is then calculated and reported as a percent change.

Frame of Reference

The Advisor Confidence Index (ACI) is a GPS-like tool that gives advisors a sense of where they stand compared to their peers. David Cramer, from Cramer Financial Services in Owings Mills, Maryland, says that when he looks at the ACI, “If there is a difference between your opinion and others’, it forces you to do more research. When you are operating alone, it’s very important to know the opinions of your peers.” Some advisors use the Advisor Confidence Index as another economic measurement tool. Michael Sadoff from Sadoff Investment Management in Milwaukee compares it to the Consumer Confidence Index: “It’s a contraindicator to the CCI. It’s interesting to see the different perspectives of advisors and consumers on the economy and the stock market. In case of any major changes in the economy, advisors start to see the new trends before consumers do.” James Dailey of TEAM Financial Managers in Harrisburg, Pennsylvania says his firm uses the ACI as a tool to “measure the supply and demand of the market.”

So how did advisors feel about the stock market and the economy in 2004? As Chart 2 above shows, the Advisor Confidence Index decreased 3.26% from its inception in March 2004 to February 2005. Summer 2004, reflecting the dual uncertainties of the Presidential election and subsequent market insecurity, was the most “moody” time for advisors. The index reported its highest number in June (129.07) when employment numbers and corporate earnings were strong and the recent market selloff convinced many advisors that the economy and stock market were in good shape for the very near term. The index then whipsawed to its lowest point in August (115.36). This decrease was correlated to a notable number of economic indicators (such as a less-positive jobs outlook and rising oil prices) that impacted advisor sentiment. The last high for the index occurred in November (124.48); the index has been slowly decreasing since. This drop shows just how cautious and sensitive advisors have become to minor shifts in the stock market, with the trend shifting toward long-term skepticism.

As you consider the resources available to you as an advisor, don’t discount the value of benchmarking your opinion against those of your peers. Taking a regular reading of your sentiment and holding it up to those of others may provide you with additional insight on your marketplace and can provide you with a good perspective.

Maya Ivanova is a

research analyst with Rydex, an affiliate of

Rydex Investments. She can be reached at <a

href=”mailto:[email protected]”>[email protected].



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If you would like to receive any of the following research reports

via e-mail, please contact <a

href=”mailto:[email protected]”>[email protected].


Advisor Confidence Index monthly release;

AdvisorBenchmarking’s 2003 Comprehensive Analysis of

the RIA Marketplace Study;

AdvisorBenchmarking Media

Exposure Series.

To receive a customized benchmarking

analysis of your practice, visit

the free online tool <a


AdvisorBenchmarking, Inc., an affiliate of Rydex

Investments, is a research and analysis center focused on the RIA

marketplace Through its web site,, the

firm conducts multiple advisor surveys every year covering a host of

business management and investment-management practices. The findings

and analysis of the data are then released to the marketplace in the

form of annual studies, quarterly research notes and monthly

newsletters. The service is aimed at helping advisors grow and enhance

their firms by comparing how their businesses fare against other

advisors, as well as learning best practices of the most successful



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