Data & Research March 19, 2009

Survey Says Advisers Helped Minimize Investment Loss

Fidelity Investments research shows that the largest percentage of individual investors surveyed (32%) feel that their adviser or broker helped minimize investment loss during the past six months.
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However, one in four (24%) investors believe that their adviser did not minimize losses—even though they reported their investable assets performed, on average, 16 percentage points better than the S&P 500 during the past six months, Fidelity said.

When asked a similar question about how their clients behaved in this challenging market environment, advisers reported that their clients did well, and did not panic, with many understanding that investment losses were to be expected, according to a release of the survey results from Fidelity.

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“The fact that investors differ in their opinions about how their adviser performed shows just how challenging this market has become for advisers,” said Charles Goldman, president of Institutional Platforms, Fidelity Investments, in the release. “While this is undoubtedly one of the most challenging market environments this generation of advisers has ever experienced, it’s encouraging to see that they are optimistic about their future growth prospects. The environment also has reinforced that this is a relationship business built on communication and trust between advisers and their clients.”

Opportunity for Growth

Although many advisers across all types of channels have seen assets under management and profit margins drop over the past six months, nearly all (96%) feel that the ongoing market environment has better positioned their business for future growth, Fidelity reported.

Nearly half (49%) of advisers said that they are seeing growth come through current clients consolidating assets with them, according to the survey.

Advisers said the top three drivers of their growth are: “clients are seeking more advice,” “clients have more realistic expectations for investment returns,” and “weaker competitors are being driven from the market.”

“Times of economic and market uncertainty bring opportunity for those willing to look for it; this is especially true for advisers,” said Goldman. “The need for professional investment advice has never been greater. Advisers of all types have a once-in-a-lifetime opportunity to position their businesses for future growth by focusing on areas such as investment processes, client communication, or even talent acquisition.”

Relationships Still Strong

When asked whether the financial crisis has affected their relationship, most investors and advisers agree that the relationship has not changed, Fidelity said. Yet more advisers (38%) are likely to believe that their relationships have improved than are investors (9%).

Investors and advisers agree that more communication is needed. Almost three-quarters (72%) of advisers say they are communicating with clients more frequently, while more than one-quarter (28%) of investors plan to communicate more frequently.

Looking to the future, investors will focus more on risk. Nearly four in 10 (37%) said that they will discuss strategies to mitigate risk with their advisers, while 21% will review investments carefully to better understand potential upside and downside associated with each investment. More than half (52%) of advisers said they are reassessing their clients’ risk tolerance and 47% are discussing strategies to mitigate risk.

Fidelity surveyed more than 200 advisers and 300 investors.

The Markets March 19, 2009

Merrill Lynch Fund Manager Survey Finds Growing Optimism

While still shying away from equities, investors are at their most optimistic about the global economy since December 2005, according to the latest Merrill Lynch Survey of Fund Managers.
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Could it be that investors do not think it could get much worse? A press release of the results of Merrill’s survey said that for the first time in more than three years, investors do not predict lower global economic growth over the next 12 months. Merrill attributed that to renewed optimism about China’s economy.

While pessimism has dropped, the banking crisis is keeping risk appetite at a low as well. “March’s survey shows signs that investors want to believe in an economic recovery. However, caution on banks is firmly capping risk appetite,” said Gary Baker, Banc of America Securities-Merrill Lynch co-head of international investment strategy, in the release.

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Manager Holdings

A net 48% of asset allocators said they are underweight banks this month, up from a net 39% in February, according to the survey. A total of 22% said they are aggressively underweight banks, versus 17% in February.

Risk appetite in equities took a clear downward turn in March despite the improved economic outlook. Respondents said they have reduced their equity exposure in the past month while increasing cash holdings and fixed-income investments, Merrill said.

A net 41% of respondents are underweight equities, up from a net 34% in February. World equities fell by 15.5 percent during the days the survey took place. Investors appeared to have flooded into bonds with a net 26% of the panel overweight the assets class, up sharply from a net 7% the previous month. Average cash balances rose to 5.2% from 4.9% in February.

Merrill noted there are some signs of recovery. A net 42% of the panel believe equities are undervalued, up from a net 24% percent in February. Investors seem to be moving away from the most defensive stocks, such as in Pharmaceuticals–where a net 30% are now overweight the sector, down from a net 37% last month—toward Technology, a much more cyclical industry. A net 28% of respondents are overweight Technology, up from a net 15% in February.

“How investors resolve this anomaly between growth optimism and risk reluctance will determine the fate of equity markets this spring,” said Michael Hartnett, Banc of America Securities-Merrill Lynch co-head of international investment strategy, in the release.

On the international front, investors have become more bullish about emerging markets, especially China, the survey found. A net 4% are overweight the emerging markets sector compared with net 4% being underweight in February. At the same time, commodities have made further gains with the number of investors underweight the asset class falling to a net 6%, down from a net 25% in January.

Meanwhile investors are underweight in eurozone and Japanese equities (a net 40% and 39%, respectively).

A total of 213 fund managers, managing a total of US$533 billion participated in the global survey from March 6 to March 12. A total of 183 managers, managing US$365 billion, participated in the regional surveys. The survey was conducted by Banc of America Securities—Merrill Lynch Research with the help of market research company TNS.

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