Natixis Survey Finds Financial Advisors and Professionals Optimistic on Markets Despite Ongoing Volatility; Experts Forecasting 2020 Returns to Look More Like 2018 Than 2008

BOSTON, June 15, 2020 – Even with signs of a market recovery, financial professionals expected the stock market to escape pandemic driven volatility relatively unscathed, according to findings of a survey published today by Natixis Investment Managers. Advisors are optimistic the market will continue to right itself in the second half of the year, but they expect more volatility ahead, and ultimately forecast modest losses for the year of 3.6%.

Between March 16 and April 24, 2020, Natixis surveyed 2,700 financial professionals in 16 countries, including a pool of 300 wealth managers, investment advisors, and in the US, and found that, globally, respondents forecast a loss of 7% for the S&P 500 and a loss of 7.3% for the MSCI World Index at year end. Their 2020 return expectations more closely resemble the modest declines seen in 2018¹ than in 2008, when the S&P plunged 37% and the MSCI posted a loss of 40.33%. In the US market, the outlook is more optimistic, but elsewhere, financial professionals are notably more pessimistic about stock performance in their own markets, with those in Hong Kong, Australia, Italy and Germany all projecting double-digit losses for the year.
 

Financial Professionals 2020 Stock Market Projections

Ongoing volatility remains the top risk to portfolio performance and market outlook. Two-thirds (65%) of professionals in the US cite volatility as a top concern, followed closely by recession fears (64%). More than four in ten (43%) say uncertainty surrounding geopolitical events poses a risk to their portfolios, while one in four (25%) anticipate the US presidential election to be a factor. In a dramatic shift in risk concerns from previous years’ surveys, few respondents (22%) expressed concern about low yields.

“Advisors in the US seem to be giving an initial vote of confidence to the swift and dramatic actions taken by Fed and Congress in response to the pandemic, as well as the resiliency of the US economy,” said David Giunta, CEO for the US at Natixis Investment Managers. “The dramatic rise in volatility underscores the important role that active managers and financial advisors play in helping their clients navigate uncertainty, capitalize on opportunities, and remain focused on their long-term investment goals during these unprecedented markets.”
 

Resetting Expectations: Hard Lessons and Teachable Moments

After a 12-year run in which the S&P 500 delivered average annual returns of nearly 13%,² and fresh off record highs in January and February, the magnitude of losses caused by the coronavirus pandemic was swift and stunning. Never mind that nearly half of financial professionals (46%) agree that markets were overvalued at the time; nine in ten (92%) believe the prolonged bull market had made investors generally complacent about risk. And as long as the markets are up, 48% of respondents say their clients resist portfolio rebalancing.

The survey found:

• 76% of financial professionals think individual investors were unprepared for a market downturn
• 79% suspect investors forgot that the longevity of the bull market was unprecedented, not the norm, historically
• 85% think individual investors, in general, struggle to understand their own risk tolerance, and 81% say clients don’t actually recognize risk until it’s been realized

“The market downturn – and expected recovery – serves as a lesson in behavioral finance, even if learned the hard way through real losses and missed goals,” said Dave Goodsell, Executive Director of Natixis’ Center for Investor Insight. “Investors got a glimpse of what risk looks like again, and it’s a teachable moment. Financial professionals can show their value by talking with clients in real terms about risk and return expectations, helping them build resilient portfolios and how to keep emotions in check during market swings.”

Eight in ten financial professionals (81%) believe the current environment is one that favors active management. For those who embrace volatility as a potential buying and rebalancing opportunity, it’s another teachable moment for portfolio positioning and active management. Seven in ten advisors agree investors have a false sense of security in passive investments (70%) and don’t understand the risks of investing in them (78%).

Financial professionals are responding to new challenges managing client investments, expectations and behavior. Under regulatory, industry and market pressure, their approach is changing on all fronts: investment strategy, client servicing, practice management and education. In a series of upcoming reports, the Natixis Center for Investor Insight will explore in depth how financial professionals are adapting.