Volatility Continues to Be the Primary Concern of Financial Advisors, Yet Broad Investor Sentiment Is Mixed

BOSTON, Nov. 21, 2017 /PRNewswire/ -- Advisors expect an uptick in volatility over the next six months, with geopolitical issues and the U.S. political environment cited as the two biggest potential catalysts, according to the Q4 2017 Eaton Vance Advisor Top-of-Mind Index (ATOMIX) survey of 1,000 financial advisors.

Although 69% of advisors anticipate increased volatility in the next six months, anxiety levels appear to be declining. Twenty-one percent described themselves as anxious, down from 46% last quarter. When asked to describe broad investor sentiment, advisors reported mixed views among clients: Forty-two percent categorized clients as wary and 39% said their clients are optimistic.

Despite a lower level of anxiety, advisors' concerns about managing volatility, generating income, growing capital and taxes all rose on the ATOMIX this quarter, with volatility ranking first at 118.9, followed closely by income at 117.9.

"Advisors are reacting to the market's slow grind higher, which has many skeptics wondering if a cliff lies ahead," said John Moninger, managing director of retail sales. "Prolonged uncertainty around policy implementation, tax reform and future interest-rate hikes has created a sense of uneasiness even during a period of steady economic growth."

Advisor age appeared to be a distinguishing factor. Forty-seven percent of millennial advisors said they felt confident about the market, but only 37% of all other advisors felt the same. Millennial advisors were also more likely to believe their clients share their positive outlook: Forty percent said their clients feel confident, while only 26% from other generations reported confident clients.

Advisors bullish on US equities but favor non-US opportunities

Most advisors (59%) have a bullish outlook for U.S. equities, but are less confident when looking ahead 12 months: Only 36% have a bullish stance for the year ahead. Advisors have a bearish-to-neutral outlook for the U.S. bond markets for the quarter and for the next 12 months.

Non-U.S. equities appeared to be more appealing for advisors. Seventy-five percent of advisors predict we will see growth opportunities in emerging-market equities and 60% favor international (non-U.S.) equities for growth over the next 6-12 months.

"Many advisors believe U.S. markets are fully valued," said Mr. Moninger. "Looking outside the U.S. is an attractive option as advisors work with clients to build diversified portfolios to meet their investment objectives."

Politics and policy influence investment decisions

Advisors are increasingly turning their attention to politics:

Ninety percent said they closely follow politics as a business practice.
Sixty-eight percent said they generally make investment recommendations with politics in mind.
- Of those, most (55%) viewed domestic policy actions as the most important consideration, followed by foreign policy/international relations.
Ninety percent also said they are helping some or all of their clients reposition their portfolios based on proposed tax reform.

"Politics have increasingly dominated client conversations, and many advisors are using the opportunity to discuss and better understand their clients' motivations," said Mr. Moninger. "Advisors are working with clients to prepare for tax reform in addition to adjusting allocations in anticipation of tighter monetary policy."

Advisors are poised for higher interest rates and are certain 2018 will bring more than one hike. Two-thirds (65%) predict there will be two rate hikes and another 20% expect three or more hikes next year. Their most popular strategies for generating income in a rising rate environment include multistrategy bond funds, floating-rate loan funds and high-yield bond funds.

Responsible Investing appeals to clients; advisors want more education

Responsible Investing continues to gain traction with advisors and their clients. Eighty-four percent of advisors reported their clients have at least some interest in responsible investing options. However, 82% also believe Responsible Investing has a long way to go before it becomes mainstream.

Education may be the solution. One-third (33%) of advisors said they are not adequately informed about Responsible Investing strategies and another 38% said while somewhat informed, they are looking for further education. Only 21% reported feeling very well informed.

Accessing environmental, social and governance (ESG) data is a challenge for advisors. Sixty-nine percent said corporate sustainability data is hard for investors to obtain. Thirty-seven percent worry about achieving diversification with a responsibly invested fund.

"The lack of understanding about ESG principals prompted us to create Calvert's Responsible Investing framework," said Anthony Eames, director of responsible investing strategy, Calvert Research and Management, an Eaton Vance affiliate. "Our investment strategies follow the Four Pillars of Responsible Investing – performance, research, engagement and impact – which empower investors to seek competitive returns and access the full capital structure with portfolios that reflect their values."

Overall, most advisors believe Responsible Investing strategies perform relatively well:

Seventy-two percent said Responsible Investing solutions pose the same or less risk as traditional strategies.
Seventy-one percent said responsible investments are equally as or less volatile than traditional strategies.
Sixty-one percent believe responsible investment strategies perform the same or better than traditional strategies.

Client priorities for Responsible Investing continue to be environmentally focused, with clean energy (53%), sustainability (45%) and climate change (41%) emerging as the dominant reasons for selecting responsible investments.

"Clients are pursuing investment opportunities that align with their personal values," said Mr. Eames. "The demand for Responsible Investing strategies continues to rise, and advisors who deliver those strategies will emerge as sought-after experts in the field."

Eaton Vance ATOMIX Methodology
ATOMIX is calculated based on the findings of a survey of 1,000 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from September 25 – October 20, 2017. ATOMIX uses a similar methodology as the U.S. Consumer Confidence Index* (which has no affiliation with Eaton Vance) in that it calculates a weighted average of current perceptions (40% of the Index) and what advisors think about the trends (60% of the Index). The Index set a baseline average of 100 for April 2014. Each component measured is tracked quarterly to illustrate changes in advisor perceptions and changes in trends over time. Future surveys will sample different financial advisors and may produce different results.

Eaton Vance (NYSE: EV) is a leading global asset manager whose history dates to 1924. With offices in North America, Europe, Asia and Australia, Eaton Vance and its affiliates managed $422.3 billion in assets as of October 31, 2017, offering individuals and institutions a broad array of investment strategies and wealth management solutions. The Company's long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today's most discerning investors. For more information, visit eatonvance.com.

Calvert Research and Management is a leader in Responsible Investing. The company traces its roots to Calvert Investments, which was founded in 1976 and was the first to launch a socially responsible mutual fund that avoided investment in companies that did business in apartheid-era South Africa. Today, the Calvert Funds are one of the largest and most diversified families of responsibly invested mutual funds, encompassing actively and passively managed strategies, U.S. and international equity strategies, fixed-income strategies and asset allocation funds. Calvert Research and Management is a wholly owned subsidiary of Eaton Vance. For more information, visit calvert.com.

* The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100. The Index is calculated each month based on a household survey of consumers' opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%.

Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor. Prospective investors should read the prospectus carefully before investing.

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