BOSTON, Feb. 15, 2017 /PRNewswire/ -- Advisors adopted a positive attitude toward U.S. equities at the start of 2017, with 56% feeling bullish about the year ahead, according to the Eaton Vance Advisor Top-of-Mind Index (ATOMIX) survey, a quarterly survey of more than 1,000 financial advisors. Yet despite this optimism, "managing volatility" emerged as advisors' top concern, rating 114.5 on the ATOMIX scale.
"Advisors see opportunity in equity markets, but are also aware of potential volatility and the macro challenges ahead," said John Moninger, managing director of retail sales at Eaton Vance. "As a result, they are working to find ways to manage risk while driving strong results for their clients."
Although concerned, advisors appear poised to capitalize on the opportunities volatility presents, with 54% saying volatility should be both managed to avoid losses and harnessed to take advantage of opportunities. However, their clients had a different view – only 32% of advisors said their clients agree with this approach. Instead, 48% of advisors said their clients believe volatility only should be managed closely to avoid losses.
This sense of caution aligns with broader investor sentiment. Advisors reported 60% of their clients are motivated more by fear than greed. Although this fear indicator has declined from a high of 82% in August 2016, fear remained the dominant motivator.
"The current climate of elevated political uncertainty brings more potential volatility to the market, which could be beneficial for investors in search of value opportunities," said Mr. Moninger. "Volatile markets provides advisors the chance to really deliver value and support to clients by helping them navigate uncertainty and stay on course to meet their investment goals."
Politics expected to drive volatility
Sixty-five percent of advisors indicated the new U.S. administration will be a major driver of volatility in 2017, while the Federal Reserve's decisions on interest rates ranked second at 46%.
"Advisors are telling us they are approaching 2017 and the new administration with a sense of cautious optimism," said Mr. Moninger. "Politics have moved to the front of the national discussion right now, and advisors are addressing the topic to better understand client motivations and financial planning concerns."
- 63% reported discussing politics with their clients in the context of investment choices
- 17% raised the topic in almost all of their client conversations
- 16% used political side conversations to better connect with clients
Clients drive responsible investing
More than 80% of advisors said they are familiar with responsible investing, although many use different names to describe specific investment practices, such as environmental, social and governance investing (ESG), socially responsible investing (SRI), impact investing and sustainable investing.
- 70% of advisors reported their clients requested responsible investing strategies, yet only 21% of advisors said responsible investing is important to their practices
- 44% said responsible investing provides a way to connect with clients and 45% expect responsible investing to grow in their practice over the next year
- Only 11% of advisors said responsible investing has led to lower or worse performance than other mutual funds
"Responsible investing, often called ESG investing, is an area that increasingly interests clients and also has the potential to deliver differentiated results," said Mr. Moninger. "Many clients want to express their values and core beliefs through their investment decisions. Advisors can strengthen client relationships by empowering them to affect change through responsible investing choices."
Positive outlook for taxes
Advisors are optimistic President Trump's tax policies will have a positive effect on the market, with 25% saying corporate tax reform will be the top catalyst and 23% saying it will be reducing taxes for individuals.
Advisors do not anticipate changing their strategies for tax management, with many considering the same strategies they implemented last year. The top choices to help clients reduce tax bills are tax loss harvesting (31%), followed by tax-managed equity funds (21%) and municipal bond funds (21%).
When asked specifically about their attitudes about municipal bonds, advisors said the asset class is the preferred method for reducing overall tax exposure. Advisors also view municipal bonds favorably in a rising interest-rate environment, with 31% reporting they have recently increased allocations to municipal bond funds to help hedge against future rate hikes.
"Given the muni market's historical resilience, we believe the short-term reaction after the U.S. election provides tax-sensitive investors a chance to scale into munis at higher yields and cheaper valuations," said Craig Brandon, co-director of municipal investments for Eaton Vance. "This opportunity must be somewhat tempered by the backdrop of heightened uncertainty, particularly around President Trump's agenda and proposals. However, increased infrastructure spending would generally be a credit positive for the municipal market."
Eaton Vance ATOMIX Methodology
ATOMIX is calculated based on the findings of a survey of 1,008 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from December 9, 2016 – January 9, 2017. ATOMIX uses a similar methodology as the U.S. Consumer Confidence Index* (which has no affiliation with Eaton Vance) in that it calculates a weighted average of current perceptions (40% of the Index) and what advisors think about the trends (60% of the Index). The Index set a baseline average of 100 for April 2014. Each component measured is tracked quarterly to illustrate changes in advisor perceptions and changes in trends over time. Future surveys will sample different financial advisors and may produce different results.
Eaton Vance (NYSE: EV) is a leading global asset manager whose history dates to 1924. With offices in North America, Europe, Asia and Australia, Eaton Vance and its affiliates managed $354.3 billion in assets as of December 31, 2016, offering individuals and institutions a broad array of investment strategies and wealth management solutions. The Company's long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today's most discerning investors. For more information, visit eatonvance.com.
* The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100. The Index is calculated each month based on a household survey of consumers' opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%.
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