Concerns about market volatility continued to trouble financial advisors and their clients, according to the latest results from the Eaton Vance Advisor Top-of-Mind Index Survey (ATOMIX), a quarterly survey of financial advisors in the US.
Key ATOMIX survey findings:
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-The Volatility Index measured 102.2, down from the 12-month high of 112.5 in January. However, volatility significantly outpaced other challenges, including generating income, growing capital and reducing taxes.
-Eighty-five percent of advisors said their clients remained wary of a market correction.
-Seventy-two percent of advisors believed their clients’ investment decisions are motivated by fear.
-Sixty-one percent of advisors believed their clients viewed market volatility as a risk, not an opportunity.
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By GlobalDataThese results marked the third consecutive quarter that volatility was reported as the dominant source of anxiety for advisors and their clients.
Eaton Vance managing director of retail sales John Moninger said: "In the last six months, we’ve seen the energy markets cut in half and bounce back against a backdrop of lower-for-longer interest rates, unstable jobs data and tepid global growth driving a strong dollar. It makes sense that advisors and their clients are anxious about how this affects their portfolios and hard-earned dollars."
With persistent concerns about uneven global growth and still-pending interest-rate moves, 85% of advisors said their clients remained wary of a market correction.
The ATOMIX survey also found that nearly three-quarters (72%) of advisors believed their clients’ investment decisions were motivated by fear.
Eaton Vance co-director of diversified fixed income Kathleen Gaffney remarked: "Right now, investors are witnessing U.S. Treasury yields near all-time lows, corporate bond spreads that appear expensive and an equity market at or near historically high levels. This can be frustrating, especially for investors who are anxious to find consistent income streams."
Gaffney added that in the current market cycle, investors must thoroughly review their asset allocations and look to managers with proven track records in finding hidden value.
Eaton Vance chief equity investment officer Edward Perkin said: "History suggests investors don’t always behave rationally when it comes to gyrations in the market. It’s crucial to act prudently and be well-diversified across asset classes to protect capital, hedge downside risk and capitalize on mispricings in the market."
Perkin noted it is often rewarding to take a contrarian view, practice discipline and examine a broad range of factors when looking for value.
"Bargain hunting is not a group activity. It’s vital for money managers to do the research and get to the root of what is driving volatility to identify the right opportunities for long-term investment success."
ATOMIX survey results showed that six out of 10 (61%) advisors believed their clients view market volatility as a risk, not an opportunity. Moninger said this risk is best understood and managed, not avoided.
"Periods of volatility can provide significant upside for investors who take a long-term investment approach. While wealth protection is always a concern, it’s important to keep in mind that volatility also can create an opportunity for outperformance," he said.
According to the ATOMIX survey, advisors’ concerns about income rose to 96.3 from 93.3 last quarter, while concerns about taxes declined to 73.2 from 83.5 quarter over quarter.
The fact that taxes measured lower as the April 15 deadline approached may seem counterintuitive, but it suggests that investors have become complacent about the higher tax rates instituted in 2013, according to Moninger.
"Taxes are an inevitable part of investing, but a client’s effective tax rate is not. Some advisors may have lessened their focus on tax-efficient tactics, which creates an opportunity for the best advisors to use all the tools at their disposal to minimize taxes not just when Tax Day approaches, but 365 days a year," added Moninger.
Eaton Vance’s quarterly Advisor Top-of-Mind Index (ATOMIX) is part of an ongoing study initiated in April 2014 to measure the overall importance of key issues facing advisors and their clients, combined with how fast these issues are increasing in importance.
