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Portfolio > Portfolio Construction

Advisors Focused on Portfolio Management, Volatility: Fidelity

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Market volatility, regulatory reforms and global political developments in the first half unsettled investors and financial advisors, and focused advisors’ attention on portfolio management, Fidelity Institutional Asset Management reported Monday.

Twenty-six percent of advisors cited portfolio management as a key first-half theme, Fidelity’s latest quarterly Advisor Investment Pulse survey found.

Market volatility was the second biggest theme, cited by 25% of advisors, followed by 17% who cited regulatory and political developments. Other areas of focus:

  • Practice management: 10%
  • Market updates: 8%
  • Client guidance: 7%

The second-quarter results were similar: 27% of respondents focused on portfolio management, 23% on market volatility and 21% on regulatory and political developments.

In a statement, Fidelity Institutional Asset Management president Scott Couto said, “Regulatory changes like the introduction of the Department of Labor’s investment advice rule and political developments such as Brexit and the U.S. election campaign added to a degree of uncertainty to global markets.”

The Advisor Investment Pulse survey captures the investment topics on the minds of around 250 advisors in order to identify common concerns and deliver resources to help them navigate changing market conditions.

Evaluating Portfolios

Fidelity recommended that advisors apply multiple time horizons to their analysis when identifying the ideal mix of risk and return for their clients. By framing portfolio discussions using tactical, business cycle and secular lenses, advisors can debunk the notion that there is one optimal portfolio, it said.

Tactical lens: Over one- to 12-month periods, investor sentiment, geopolitics and flows may result in market deviation from longer-term trends.

Although these factors may create investment opportunities and offer attractive entry and exit points, advisors should not rely too heavily on a tactical time horizon when evaluating portfolios, Fidelity said.

Business cycle: Over one to 10 years, asset performance has historically been driven by business cycle factors that are connected to the state of the economy, including corporate earnings, credit growth and inventories.

In the U.S., Fidelity said, a mix of mid- and late-cycle dynamics currently exists, with recession risks remaining low. Because of less reliable asset performance patterns, advisors should consider smaller cyclical tilts, and continue to emphasize the importance of diversification to their clients.

Secular lens: Over a 10- to 30-year stretch, it may be useful to apply a secular lens when demographic shifts, productivity changes and other macroeconomic trends may influence asset performance.

According to Fidelity, advisors can develop a disciplined and differentiated portfolio management approach as they use multiple time horizons to look beyond immediate developments.

Advisors, it said, should set their own periods to update the three time horizons, noting that some advisors update their secular views annually, their business cycle views weekly and their tactical views daily.


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