BOSTON — Fidelity Institutional Asset Management – a newly formed distribution and client service organization dedicated to meeting the complex investment needs of financial advisors, institutions and consultants – today released the Q3 2015 results of the Fidelity® Advisor Investment Pulse. Portfolio management surged in importance for financial advisors, with nearly one-third of survey respondents citing it as an area of focus last quarter. The theme took the No. 1 spot among hot topics for advisors, up from No. 2 in Q2.
The increased attention on portfolio management was driven in large part by greater market volatility over recent months. Advisors are looking to help investor clients preserve their assets while ensuring that their portfolios continue to generate healthy returns. With almost one-quarter of the advisors surveyed focused on managing their clients' emotions and expectations through an uncertain environment, market volatility was ranked No. 2 in Q3, up from No. 3 in the previous quarter.
Interest rates, fixed-income and finding yield made up the rest of the top five themes for advisors.
"With no movement on interest rates in September, significantly fewer financial advisors are making Fed-watching their pastime," said Scott E. Couto, head of distribution, Fidelity Institutional Asset Management. "With greater market volatility, advisors are focused on adding value by helping clients smooth out the ride, positioning portfolios not only for turbulent times but for the long term."
Couto suggests that advisors keep three things in mind when helping clients navigate market uncertainty and invest for their long-term financial goals:
Three key considerations:
- Diversification works – Advisors should look at diversification not only across asset classes, but within asset classes. Diversification opportunities exist within each asset class, and advisors can take advantage of correlation differences among underlying equity and fixed-income investments. With international and U.S. stock performance historically having seen a low correlation, advisors may consider tapping into international equity markets – a mix of 70 percent domestic and 30 percent international may improve returns and reduce risk. Advisors should also consider asset allocation funds, as they can be a one-stop approach in building a diversified portfolio. Within these funds, managers can make small shifts to the portfolio to respond to the changing market environment, offering capital appreciation and income potential while helping to manage volatility.
- Sector investing can help manage risk – Given the consistency of sector volatility characteristics, sector investing can be an effective way in helping manage downside risk. A portfolio that is tilted toward historically less-volatile equity sectors – such as utilities, consumer staples, health care, and telecommunications – may demonstrate lower volatility and drawdown risk compared to the broader domestic equity market. With absolute and relative equity performance largely driven by cyclical factors tied to the state of the economy, another approach is to actively allocate toward sectors with the best risk-adjusted return profile in each phase of the business cycle.
However, advisors should be wary of adding excessive exposure to just a few defensive sectors, as this can actually raise the risk profile by creating an over-concentrated portfolio. While sector volatility characteristics are fairly stable, advisors should also be aware that the risk profiles of sectors can shift over time.
- The value of active management – The performance of active management has been cyclical, with stock return dispersion having been one of the most important influences. The greater the degree by which equity returns vary, the greater the opportunity for active managers to identify stocks with higher potential returns. Given recent market volatility, stock return dispersions have become more favorable to active management.
When looking at international investing, advisors should also note that monetary policies across the world have been diverging, and countries are finding themselves in different phases of the business cycle. More divergences could be in store, and this could potentially generate a greater range of outcomes for equity markets and individual stocks.
Whether they serve individual investors, businesses, plan sponsors or institutions, Fidelity offers advisors a range of insights to help them navigate the market. For access to the insights and resources that Fidelity offers, visit: advisor.fidelity.com/investmentpulse (for financial advisors only). They include:
- Market Volatility: Fundamentals for Investors – While market volatility can be unsettling, volatile market behavior is not unusual. Two basic principles can help advisors navigate through volatility.
- Applications for Sectors: Managing Risk – To mitigate volatility and drawdown risk, advisors should consider sector investing.
- What Bond Investors Should Know About Higher Rates – While the prospect of a Fed policy change may be significant, it does not mean rates overall will increase dramatically, and bonds will continue to play an important role in a portfolio.
Fidelity Institutional Asset Management also provides financial advisors with a comprehensive program offering the resources, know-how and confidence needed to help them build robust model portfolios, align model portfolios and risk budgets to clients’ multiple time horizons, evaluate the asset class and sector implications of the business cycle, navigate the new bond market, and assess a manager lineup.
The Fidelity Advisor Investment Pulse is a survey that captures the investment topics on the minds of around 250 advisors in order to identify common concerns and deliver resources to help them navigate changing market conditions. Fidelity has been tracking advisor sentiment about investing concerns and opportunities since April 2012. This proprietary research enables Fidelity to provide advisors with timely perspectives from their peers, and offer tools to take advantage of the investment opportunities that exist today.
About the Fidelity Advisor Investment Pulse
The Advisor Investment Pulse is an ongoing primary research effort that captures the views of more than 1,000 Fidelity Institutional Asset Management advisor clients annually. All Fidelity Institutional Asset Management advisor clients in the broker-dealer and registered investment advisor communities are asked to participate in the online survey. These advisors serve a range of clients, including individual investors, businesses, plan sponsors and institutions. Respondents are asked an open-ended question: "Thinking about the investing environment and outlook, and the potential impact on your client portfolios, what investment challenge or opportunity would you say is top-of-mind for you right now?"
The survey reports top-of-mind themes of most concern to financial advisors in both their practices and in the financial markets. These themes are distilled from individual financial advisor comments. The chart reflects the most current five themes that represent the most widely held views. Given the variability of the number of responses over time, and the ongoing nature of this effort, confidence levels will also be variable.
About Fidelity Investments
Fidelity's goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.0 trillion, including managed assets of $2.0 trillion as of September 30, 2015, we focus on meeting the unique needs of a diverse set of customers: helping more than 24 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 42,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.