Advisers Anticipate Difficult Investment Year in 2023

Into 2023, financial advisers are expecting an uptick in market volatility amid various macroeconomic headwinds facing investors, according to a recently released CoreData survey. The Australian global market research consultancy polled 481 U.S.-based financial advisers about their expectations for investing in 2023 and found that 40% of respondents concur that volatility will increase over the course of the year.

Participants in the survey said the biggest challenges facing their businesses in 2023 would be the volatility of markets, with 57% responding they see it as a major hinderance, followed by inflation (56%) and the specter of a recession (49%).Advisers also shared an expectation that the Federal Reserve would continue its rate hiking, with 50% of respondents saying they anticipate the Fed Funds rate will eclipse 5% in 2023.

The findings come after a year when everyday retirement savers saw large swings in their accounts. Retirement plan recordkeeper Fidelity Investments’ most recent analysis showed a 23% drop in the average 401(k) account balance, quarter-on-quarter. That is the latest data available from a survey of more than 35 million of Boston-based Fidelity’s participants.

Additionally, 42% of advisers said that they are planning to position their clients’ portfolios defensively in 2023, as a result of general market uncertainty. Separately, 45% of respondents said they were struggling to find safe-haven assets to fully implement defensive portfolio strategies for their client’s portfolios, in part because of the rout of fixed income in 2022.

 “The 60-40 portfolio model had a year to forget in 2022,” Andrew Inwood, founder and principal of CoreData, said in the report of the survey. “We expect advisors to re-evaluate strategies based on this traditional model as they seek more innovative solutions to diversify portfolios ahead of what will likely be another bumpy year.”

One way advisers are getting inflation protection and positioning clients defensively is by raising allocation to oil and gas equities, although this may have been the most polarizing issue in the survey.

The survey noted that “enthusiasm for renewables is muted [compared to in the past],” with 30% of respondents set to raise client allocations to oil and gas stocks, while 27% set to raise allocation to clean energy.

Environmental, social and governance considerations are another topic with disparate viewpoints represented, as 31% of advisers said they are planning on increasing allocations to ESG funds in 2023, while 21% report they do not invest client money specifically into ESG-categorized investment vehicles.

Finally, the challenging market backdrop is propelling U.S. advisers toward active managers: 38% of respondents said they will increase client allocations to active funds over the year, while only 27% said they plan to raise allocations to passive funds.