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Volatility Tops Investor, Advisor Concerns

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Market volatility is advisors’ No. 1 concern, according to a pair of recent surveys.

Russell Investments found in its second-quarter Financial Professional Outlook that market volatility was the most common topic initiated by clients, cited by 54% of advisors.

The Q2 Advisor Investment Pulse survey from Fidelity Financial Advisor Solutions also found market volatility is top-of-mind for advisors, with the majority citing that as the biggest investment topic on their minds.

However, with the VIX down 8.5% this year, according to Bloomberg, Kevin Hoffberg, managing director of marketing for Russell’s private client services and author of Russell’s report, questioned why investors are so concerned.

“It’s hard to know for certain why investors seem fixated on volatility,” Hoffberg wrote in the report. “Obviously the markets have had quite a run over the last few years and there is plenty of chatter in the press about a pullback. Yet the market’s low volatility levels seem to ignore that possibility, at least for now.”

Russell surveyed 150 advisors at 80 firms for its quarterly report. The Fidelity survey is an ongoing research effort that asks FFAS advisors one question: “Thinking about the investing environment and outlook, and the potential impact on your client portfolios, what investment challenge or opportunity would you say is top-of-mind for you right now?” The second-quarter report is based on 197 responses.

Over a quarter of respondents to Fidelity’s survey said market volatility was the biggest challenge on their mind, along with protecting against downside risk and avoiding another market meltdown. Twenty-one percent cited portfolio management and investment allocation as their biggest challenge. Concern was evenly split between interest rates or bonds and fixed income, while just 15% said finding yield and generating income was their biggest challenge.

“Based on our Q2 survey results, we know that many advisors are thinking about a possible market correction, but at the same time they are looking for ways to find growth and generate income for their clients,” Scott Couto, president of Fidelity Financial Advisor Solutions, said in a statement. “We believe that the differences between winners and losers among asset classes and individual securities are likely to increase, favoring active asset managers with the ability to conduct the research necessary to identify those opportunities offering the best chances for growth.”

Advisors are far more optimistic about equity markets than their clients: 82% versus 25%, according to the Russell report. Furthermore, although advisor and client sentiment both fell five points since the first quarter, that small of a slip is not “meaningful,” according to Hoffberg. “The overall theme remains the same, though: advisors are bullish, clients are uncertain.”

When asked to predict where the Russell 1000 Index, the Russell 2000 Index and the 10-year Treasury yield would be by the end of the year, advisors predicted an average 6.3% bump in the Russell 1000. They reported similar predictions for the Russell 2000 and the 10-year Treasury yield: 5.3% and 5.6% respectively.

“On average, their predictions don’t seem unreasonable,” Hoffberg wrote, “but would essentially amount to an annual return of 11.18% for the Russell 1000 Index, 3.58% for the Russell 2000 Index and a yield on the 10-year Treasury that would be down 12.67% for the year. So, on average, advisors are still looking up.”

“Our investment and research teams see signs pointing to continued growth in equities,” Fidelity’s Cuoto said, as well as in value stocks and the technology and health care sectors. “We’ve seen many advisors take advantage of sector investing to diversify their clients’ portfolios, manage risk and help generate potential alpha,” he added.

Russell also asked advisors where they were looking for new clients, and the majority said they wanted more resources to help acquire older clients who were in or near retirement. A similar percentage, though, said they also wanted help winning business from clients in their peak earning years (72% versus 70%).

Just 55% of advisors said they wanted more resources to help add female clients, and 39% wanted help with younger clients.

Check out Jeremy Grantham: Market Crash ‘Not Imminent’; Bubble Still Inflating on ThinkAdvisor.


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