Volatility Concerns Spiked During Period of Global Unrest, According to Eaton Vance Advisor Top-of-Mind Survey
BOSTON, Feb. 5, 2015 /PRNewswire/ -- Financial advisors remain significantly concerned about how to capitalize on volatility and best protect their clients' assets. For the third straight quarter, anxiety over volatility has increased and is now rated 112.5 on the Advisor Top-of-Mind Index, up dramatically from 103.6 the prior quarter and 102.2 in July, according to the most recent Eaton Vance Advisor Top-of-Mind Index Survey.
"Financial advisors are telling us that global events are significantly increasing investors' concerns about volatility and how to manage it," said John Moninger, Eaton Vance's managing director of retail sales. "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."
Rich Bernstein, CEO and CIO of Richard Bernstein Advisors LLC, agreed and emphasizes how emotion often prevents investors from taking advantage of volatile markets.
"Volatility triggers an emotional reaction among investors," said Bernstein. "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."
Kathleen Gaffney, CFA, co-director of diversified fixed income at Eaton Vance, 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," Gaffney said. "Investors who embrace the volatility and examine company fundamentals are poised to identify opportunities as the markets punishingly price in the uncertainty."
The 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.
"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," said Bob Cunha, managing director at Eaton Vance. "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," said Moninger, "but the reality is, advisors need to focus limiting clients' tax exposure throughout the year for true tax optimization."
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.
Eaton Vance's quarterly Advisor Top-of-Mind Index is part of an ongoing study that measures the overall importance of key issues facing financial advisors and their clients, combined with how fast these issues are increasing in importance.
Eaton Vance Advisor Top-of-Mind Index Methodology
The Advisor Top-of-Mind Index is calculated based on the findings of a survey of 402 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from December 10 – December 17, 2014. The Advisor Top-of-Mind Index 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 Corp. (NYSE: EV) is one of the oldest investment management firms in the United States with a history dating to 1924. Eaton Vance and its affiliates managed $296.0 billion in assets as of December 31, 2014, 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 on the basis of 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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SOURCE Eaton Vance Corp.
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