Advisors Expect Returns More Like 2018 Than 2008: Survey

U.S. financial professionals in a new survey say they expect the stock market to continue to right itself in the second half even as they express strong concerns about volatility and recession fears, Natixis Investment Managers reported Monday.

Their counterparts in the rest of the world were more pessimistic.

CoreData Research conducted the survey between March 16 and April 24 among 2,700 wirehouse advisors, RIAs and independent broker-dealers with $135 billion in client assets in 16 countries and territories in Asia, Continental Europe, Latin America, the U.K. and the Americas. The U.S. segment comprised 300 financial professionals with $29 billion in assets and an average of 22 years’ industry experience.

U.S. survey participants forecast modest losses this year of 3.6% for the S&P 500 and 6.1% for the MSCI World Index.

In contrast, respondents globally forecast a loss of 7% for the S&P 500 and 7.3% for the MSCI World Index at year-end.

Natixis noted that these 2020 return expectations more closely resembled the modest declines seen in 2018 — when the S&P declined 4.4% and the MSCI World 8.2% — than in 2008, when the S&P plunged 37% and the MSCI 40%.

Unlike the brighter outlook of financial professionals in the U.S. market, those elsewhere were notably more pessimistic in their predictions for stock performance in their own markets:

• France – CAC 40: -5.6%
• Hong Kong – Hang Seng: -11.5%
• Italy – FTSE MIB: -13.5%
• Australia – ASX 200: -12.6%
• Germany – DAX: -16.6%
• U.K. – FTSE 100: -7.2%

Continuing volatility was the top risk to portfolio performance and market outlook cited by 65% of U.S. professionals, while 64% were worried about recession.

Forty-three percent of the U.S. contingent said uncertainty around geopolitical events posed a risk to their portfolios, while 25% expected the November presidential election to be a factor.

In what Natixis said was a dramatic shift in risk concerns from previous years’ surveys, only 22% of U.S. respondents expressed concern about low yields.

“Advisors in the U.S. seem to be giving an initial vote of confidence to the swift and dramatic actions taken by Fed and Congress in response to the pandemic, as well as the resiliency of the U.S. economy,” David Giunta, chief executive for the U.S. at Natixis Investment Managers, said in a statement.

“The dramatic rise in volatility underscores the important role that active managers and financial advisors play in helping their clients navigate uncertainty, capitalize on opportunities, and remain focused on their long-term investment goals during these unprecedented markets.”

Hard Lessons, Teachable Moments 

The magnitude of stock market losses in March caused by the coronavirus pandemic was swift and stunning. This, even though 46% of financial professionals in the survey agreed that markets were overvalued at the time.

Ninety-two percent said the prolonged bull market had made investors generally complacent about risk. And as long as the markets were up, 48% of respondents said, their clients resisted portfolio rebalancing.

Seventy-six percent of financial professionals maintained individual investors were unprepared for a market downturn. Seventy-nine percent said investors likely forgot that the bull market’s longevity was unprecedented, not the norm, historically.

Eighty-five percent thought that individual investors, in general, struggled to understand their own risk tolerance, and 81% said clients do not actually recognize risk until it is been realized.

“The market downturn — and expected recovery — serves as a lesson in behavioral finance, even if learned the hard way through real losses and missed goals,” Dave Goodsell, executive director of Natixis’ Center for Investor Insight, said in the statement.

“Investors got a glimpse of what risk looks like again, and it’s a teachable moment. Financial professionals can show their value by talking with clients in real terms about risk and return expectations, helping them build resilient portfolios and how to keep emotions in check during market swings.”

Eighty-one percent of financial professionals surveyed said the current environment favors active management. For those who embrace volatility as a potential buying and rebalancing opportunity, it is another teachable moment for portfolio positioning and active management.

Seventy percent said investors have a false sense of security in passive investments, and 78% said they do not understand the risks of investing in them.

— Check out Prep Your Practice Now for Future Market Volatility on ThinkAdvisor.