Volatility, Delivering Yield Top of Mind for Advisers

Advisers’ concerns about market volatility rose to 109.5 in the second-quarter Eaton Vance Advisor Top of Mind Index survey, up from 102.2 in the first quarter. Generating income measured 111.5 on the index, up from 96.3 last quarter. When Eaton Vance launched the survey in April 2014, it set a baseline average of 100 for the index.

The survey also found that 87% of advisers say at least some of their clients are wary of equities. In addition, 74% of advisers are concerned about interest rate increases, 69% believe their clients are motivated by fear, and 59% think their clients view market volatility as a risk rather than an opportunity. Sixty-five percent of advisers say they are trying to mitigate their clients’ market risk via diversification, and 41% are moving holdings into cash. However, many advisers say volatility offers buying opportunities and is the price investors pay for solid returns.

“Volatility always lurks, but how investors are preparing for and managing volatility is what really matters,” says John Moninger, managing director at Eaton Vance. “It starts with having a plan to address the effects of volatility on a portfolio and harnessing the opportunity it may create to influence long-term goals.”

Kathleen Gaffney, co-director of diversified fixed income at Eaton Vance, agrees with Moninger that volatility can lead to attractive values: “There is a lot of uncertainty in the market right now, which has historically led to good value. In a market environment driven by low yields and uneven global growth, it’s critical to respond in a thoughtful, rational way that allows investors to take advantage of undervalued opportunities that can potentially lead to long-term rewards.”

Michael Liersch, head of behavioral finance for Merrill Lynch, concurs that the best approach investors can take is to stay the course. “Many investors suffer from being reactive, rather than staying the course they had set for themselves,” he says. “They run the risk of continually buying high and selling low, essentially churning and burning their own portfolios.”