Constant State of Flux in First Six Months of 2016 Drives Advisors to Focus on Portfolio Management

Advisors Should Consider Ways to Look Beyond the Near Term, Including Applying Multiple Time Horizons and the Business Cycle When Evaluating Client Portfolios

  • Business Cycle Update
  • Business Cycle Update
  • Business Cycle Update
  • Business Cycle Update

BOSTON — Market volatility, regulatory reforms, and political and macroeconomic shifts were top-of-mind for financial advisors across the first half of 2016, according to the latest Fidelity® Advisor Investment Pulse study. These factors generated nervousness among advisors and investors, who in turn directed their attention toward portfolio management to help their clients navigate the uncertainty. The latest results of the quarterly survey were released today by Fidelity Institutional Asset Management, a distribution and client service organization dedicated to meeting the investment needs of financial advisors, institutions and consultants.

Across the first half of the year, portfolio management was the No. 1 theme with more than 26 percent of advisors surveyed citing it as an area of focus. This was closely followed by market volatility (nearly 26 percent) and developments in the regulatory and political landscape (nearly 18 percent). In just Q2, the results were similar, with 27 percent of respondents focused on portfolio management, 23 percent concerned about market volatility, and 21 percent keeping an eye on regulatory and political developments.

"Without question, volatility was a big concern for both advisors and investors in the first six months of the year," said Scott E. Couto, president, Fidelity Institutional Asset ManagementSM (FIAMSM). "Regulatory changes like the introduction of the Department of Labor's investment advice rule* and political developments such as Brexit and the U.S. election campaign added to a degree of uncertainty to global markets."

"Advisors have been in a constant state of flux, but they can help make sense of the range of short- and medium-term factors in play by looking at client portfolios through multiple time horizons," added Couto.

Applying Multiple Time Horizons When Evaluating Portfolios

When identifying the ideal mix of risk and return for their clients, advisors should apply multiple time horizons to their analysis:

  • Tactical lens (1 to 12 months): Over shorter time periods, geopolitics, investor sentiment and flows are factors that may result in the market deviating from longer-term trends, as advisors and investors might have seen in the first half of 2016. While these may create investment opportunities and offer attractive entry and exit points, advisors should not be overly dependent on a tactical time horizon when evaluating portfolios.
  • Business cycle (1 to 10 years): Over an intermediate term of 1 to 10 years, asset performance has historically been driven by business cycle factors that are connected to the state of the economy, including corporate earnings, credit growth, and inventories. In the U.S., there is currently a mix of mid- and late-cycle dynamics, with recession risks remaining low. Because of less reliable asset performance patterns, advisors should consider smaller cyclical tilts, as well as continuing to educate their clients about the importance of diversification.
  • Secular lens (10 to 30 years): It may be useful to apply a secular lens when, over a 10- to 30-year time frame, demographic shifts, productivity changes, and other macroeconomic trends may influence asset performance.

Framing portfolio discussions using the tactical, business cycle, and secular lenses may help advisors debunk the myth that there is one optimal portfolio. As advisors use multiple time horizons to look beyond immediate developments like the Department of Labor's investment advice rule, Brexit and the U.S. election campaign, they may be able to develop a disciplined and differentiated approach to portfolio management. Advisors should set their own guardrails around the three time horizons: Some advisors update their secular views annually, their business cycle views weekly, and their tactical views on a daily basis.

Resources for Advisors

Fidelity Institutional Asset Management offers advisors original insights aimed at addressing their top concerns. The resources may be used to support client discussions and cover topics such as managing through market volatility, capturing opportunities created by the Department of Labor's investment advice rule, and using time horizons and business cycles to evaluate portfolios. To access these insights from Fidelity, visit: institutional.fidelity.com/investmentpulse (for financial advisors only). Resources include:

  • The Evolution of Portfolio Construction: Rethinking Time – Differentiate, protect, and grow your practice with Fidelity's portfolio construction program, aimed at helping evolve your discussions with clients and prospects.
  • Demonstrate Your Value to Clients – With a variety of financial guidance options available to investors, why should someone choose you as an advisor?
  • 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.

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 $5.4 trillion, including managed assets of $2.1 trillion as of June 30, 2016, we focus on meeting the unique needs of a diverse set of customers: helping more than 25 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 investment and technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 45,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

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