For the third straight quarter, anxiety of financial advisors over volatility has increased and is now rated 112.5 on the Advisor Top-of-Mind Index, up from 103.6 the prior quarter and 102.2 in July, according to the latest Eaton Vance Advisor Top-of-Mind Index Survey.
Eaton Vance’s managing director of retail sales John Moninger said, "Financial advisors are telling us that global events are significantly increasing investors’ concerns about volatility and how to manage it. Every day, we have conversations with advisors about declining commodity prices, terrorism, questions about deflation in Europe and uncertainty over future Fed action; these issues are driving significant swings in market sentiment. With so many variables in flux, it is more important than ever for advisors to position their clients’ portfolios for the opportunities and pitfalls that arise daily."
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Richard Bernstein Advisors CEO and CIO Rich Bernstein agreed and emphasized how emotion often prevents investors from taking advantage of volatile markets.
"Volatility triggers an emotional reaction among investors. Decisions made under duress are often misguided. It is critical to examine the fundamentals and position portfolios to benefit from the opportunities that arise in volatile markets," said Bernstein.
Eaton Vance co-director of diversified fixed income Kathleen Gaffney believes market turbulence will continue well into 2015, bringing with it opportunities to selectively add strategic risk.
"The collapse in oil prices has led to a marked increase in capital market volatility, particularly for commodity-related stocks, convertibles and high-yield bonds. Investors who embrace the volatility and examine company fundamentals are poised to identify opportunities as the markets punishingly price in the uncertainty," Gaffney said.
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By GlobalDataThe Advisor Top-of Mind Index also revealed that advisors’ concerns over "generating income" and "growing wealth through capital appreciation," previously at historical highs, have lessened significantly since the summer.
Since July, advisors’ concerns over "generating income," fell to 93.3 from 106.3 on the Index. During the same time period, anxiety about "growing wealth" fell to 84.5 from 92.3.
Eaton Vance managing director Bob Cunha said, "Given the current uncertainty, it’s understandable that advisors and their clients are assuming a vigilant approach to managing these waves of volatility and focusing primarily on protecting assets. It’s not surprising to see that the importance of ‘growing wealth’ has decreased precipitously, as advisors’ clients are likely more focused on wealth preservation at this point in the investment cycle."
Changes to the U.S. tax code in the last year also have advisors concerned. Tax concerns increased to 83.5 on the Advisor Top-of-Mind Index, up from 78.1 in July.
Concurrently, the survey found that 31% of advisors are spending more time this year mitigating the tax exposure on their clients’ assets.
At the same time, 42% of advisors are changing asset allocations within client portfolios to help mitigate future tax bills.
Moninger said this behavior is typical. "Concerns over reducing clients’ tax bills continue to creep up as Tax Day approaches, but the reality is, advisors need to focus limiting clients’ tax exposure throughout the year for true tax optimization," said Moninger.
Close to half (48%) of advisors surveyed indicated their clients are questioning the tax implications of their portfolios, but are unsure what actions to take and consistently look for advisor guidance.
The uncertainty surrounding the timing of a Fed decision on interest rates is also weighing heavily on the minds of many advisors.
According to the survey, 46% of advisors expect a rate hike in the second half of 2015, while another 25% expect the Fed to raise rates in the first half of 2016.
Regardless of timing, 83% of advisors noted that they were "concerned" over rising rates.
Consequently, a majority of advisors surveyed are either shortening the duration of their fixed-income holdings or increasing exposure to actively managed fixed-income funds in an effort to limit the impact of a rising-rate environment on client portfolios.
