Data and Research

Adviser Focus Shifts From Interest Rates to Equity Highs

With the equity markets riding high, more advisers are contemplating how to secure downside protection for their clients’ portfolios. 

By John Manganaro editors@strategic-i.com | August 08, 2017
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Fidelity has published its latest Advisor Investment Pulse Survey, finding that retirement-focused financial advisers are squarely focused on boosting diversification and downside protection in client portfolios.

Given the machinations in Washington and state capitols across the U.S., tied to booming equity markets, it’s no surprise Fidelity finds “the government/economy” and “portfolio management” remained the top two areas of focus in Q2 2017. Additionally, the survey found that financial advisers have become increasingly concerned about market volatility and equity market level, ranked third and fourth, respectively.

The previous edition of the adviser survey found interest rates ranked No. 3, dropping to ninth-most important in Q2. Fidelity says this is somewhat perplexing given the current rising rate environment and advisers’ focus on downside risk.

“With the stock market near record levels, advisers have become increasingly focused on making sure their clients’ portfolios are well diversified across the different asset classes, whether it’s equity or fixed income,” notes Robert Litle, head of intermediary sales, Fidelity Institutional Asset Management. “In this environment, we are seeing greater attention among advisers to protecting clients from any downside risk.”

Litle recommends, given the difficulty in predicting the direction and pace of interest rate changes with any certainty, that advisers should “consider different market and interest rate scenarios as they help investors stick to their long-term investment plans.” Simply put, interest rates “should remain top-of-mind for advisers, given the Federal Reserve’s forecasts for a gradual increase in interest rates.”

The Fidelity research points out that actively managed U.S. large-cap funds “have tended to outperform in months when interest rates were rising, and tended to underperform when rates were falling or flat … One reason could be that the average actively managed U.S. large-cap fund has historically held relatively more mid-cap exposure than its benchmark index.”

NEXT: Concerns about the downside