Economic Slowdown, Inflation, Top List of Adviser Concerns in PGIM Study

When it comes to client portfolios, financial advisers are most concerned with an economic slowdown, followed by inflation and market volatility, according to the latest survey from PGIM Inc., the asset management arm of Prudential Financial.

When looking at the year ahead, advisers are most concerned, in order, with an economic slowdown (56%), inflation uncertainty (53%), stock market volatility (44%) and both interest rate uncertainty and geopolitical events (38% each), according to PGIM’s On the Minds of Advisors survey for the year’s second quarter.

The survey, taken quarterly, saw interest rate concerns fall out of the top three portfolio management concerns, according to PGIM. In Q1, the top concerns were inflation uncertainty (65%), stock market volatility (52%) and interest rate uncertainty (43%). But a sense that the Federal Reserve is slowing what had been aggressive interest rate hikes intended to cool inflation has brought general economic slowdown and inflation to the forefront.

The concerns, according to PGIM analysts, have merit.

The firm noted in the report that, in PGIM Fixed Income’s “Q323 Quarterly Outlook,” Chief Global Economist Daleep Singh said that “one of PFI’s economic scenarios calls for ‘weakflation’ over the coming year—a combination of sluggish growth and declining inflation that hovers above the Fed’s target rate.”

Allocation Insights

When asked if they would make any allocation changes to portfolios during a pause in rates, investors were mixed. A slight majority said they would maintain course both in fixed income (49%) and equity allocation (46%). Meanwhile, 38% of advisers said they would increase fixed-income holdings, and 42% said they would boost equities. Just 13% in both categories said they would decrease holdings.

When it came to alternative investments, advisers were more solidly in the camp of holding pat (57%), with 18% planning to add alts to portfolios, 7% planning to decrease and 18% not offering the investment option.

Bullish on Treasurys

When it came to their most favored fixed-income sectors, advisers ranked, in order, U.S. Treasurys (67%), investment grade corporate bonds (64%), municipal bonds (61%) and high-yield bonds (42%) as the most attractive. That’s a reversal from the same period in 2022, when advisers ranked U.S. Treasurys as one of their “least-attractive” sectors, according to PGIM.

Meanwhile, two sectors that made gains between the first two quarters of the year were agency mortgage-backed securities (to 34% in Q2 from 24% in Q1) and asset-backed securities (to 22% in Q2 from 12% in Q1).

PGIM analysts also remain optimistic about municipal bonds, according to the report.

“This sector could rise further as the negative effects from the debt ceiling debate, interest rate uncertainty, and the banking crisis dissipate,” PGIM wrote in the report.

The survey questions were asked as part of Escalent’s Cogent Beat Advisor data gathered from May 24 through June 7 from a representative sample of 379 financial advisers. Q1 data was obtained from February 24 through March 7 and included responses from a representative sample of 476 financial advisers.