Advisors Focus On Portfolio Management Amid Rising Rates and Volatility, Latest Fidelity® Survey Reveals

Advisors Should Consider Multiple Time Horizons When Constructing Portfolios, Using Not Only the Tactical and Secular Lenses But Also the Cyclical Lens

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BOSTON – Portfolio management remained top-of-mind for financial advisors in Q4 2015, according to the latest Fidelity® Advisor Investment Pulse study. One-quarter of the advisors surveyed said the topic – which also took the No. 1 spot in Q3 – was an area of concern. Over the course of the second half of last year, portfolio management was more frequently cited as an area of focus than any other theme. The latest results of the 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.

In their search for the ideal mix of risk and return, advisors may sometimes ignore the role of different time horizons in investing, even though they acknowledge it as important. This can contribute to the myth of there being one optimal portfolio.

"In reality, because markets are dynamic, an investment approach that works for one time horizon may potentially deliver a very different result for another," said Scott E. Couto, head of distribution, Fidelity Institutional Asset Management. "Advisors may find it useful to frame their portfolio discussions with clients around multiple time horizons."

Some advisors may already be looking at portfolios through a tactical lens (one to 12-month time frame), a period when geopolitics and consumer sentiment may push prices away from longer-term trends, as well a secular lens (10 to 30-year time frame), when demographic changes, productivity growth, and other economic trends that evolve over extended periods influence asset performance. This may not be sufficient.

Couto suggests that it is also important for advisors to consider the impact of the business cycle when trying to identify a balance between risk and return. This requires advisors to evaluate their clients' portfolios over the intermediate term (one to 10 years), a period when asset performance is tied to economic factors such as corporate earnings, credit growth, and inventories. Today, most developed economies remain in the mid-cycle expansionary phase, when cyclical industries such as technology have historically performed well.

This is why framing portfolio discussions using not only the tactical and secular lenses, but also the cyclical lens, may help advisors develop a disciplined and differentiated approach to portfolio management. Advisors should consider setting their own guardrails around their secular, cyclical and tactical time horizons. Some advisors may update their secular views annually, their business cycle views weekly, and their tactical views on a daily basis.

Results from the Q4 2015 Fidelity Advisor Investment Pulse survey also showed that interest rates, market volatility, finding yield, and changes in the regulatory and macroeconomic environment continued to be important in the last quarter.

"Interest rates dominated business headlines for much of Q4, with the Fed moving to raise rates in December," explained Couto. "That said, there were other important influences toward the end of last year and coming into this year. Market volatility has remained a significant concern, and an increasing number of advisors are keeping their eye on developments with the Department of Labor's new fiduciary rule."

"To make sense of the range of factors in play, many advisors are choosing to take a holistic, client-centric view. They want to understand how all these factors could affect their clients' portfolios, and they want to be able to explain the potential impact to their clients," added Couto.

When examining these other factors, advisors should challenge long-held myths, including avoiding bonds when rates rise. In reality, while interest rates may have risen, advisors may find it useful to evaluate credit risk as well as interest rate risk. A core of investment-grade bonds may help diversify equity risk, particularly in an environment where greater market volatility is a concern.

Resources for advisors

To address their concerns, Fidelity Institutional Asset Management offers a comprehensive program to arm advisors with original insights that can help support client discussions on portfolio management. The program aims to evolve the way advisors think about building portfolios, providing resources on current market dynamics, evaluating the impact of the business cycle on asset classes and sectors, the importance of active management in light of the new bond market, and how to approach manager selection given the overwhelming range of investment options available. To access the insights that Fidelity offers, and to demystify other portfolio construction myths, visit: advisor.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 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 $5.2 trillion, including managed assets of $2.1 trillion as of November 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.

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