I have the good fortune of meeting with advisors across Canada and hearing directly about the issues that are top of mind for their clients and their businesses. Usually there’s a certain amount of consistency to what they tell me in terms of sentiment in the market. The big picture view of asset class trends also tends to provide a consensus on where advisors are actively making allocations and how they are positioning investor portfolios.
For the past few years we’ve seen over-weights to global strategies across equities, fixed income and balanced products as growth-focused outlooks fed investor risk appetite.
In my view, that big picture consensus has begun to shift, following the onslaught of volatility in the fourth quarter of 2018. To me, this suggests that portfolio allocations are at an inflection point, as advisors try to make sense of the divergence playing out in global markets.
My experience has been that they generally fall into three broad categories.
Those who were spooked by the volatility, among whom we’re seeing some portfolios grow their cash allocations as they await a catalyst for a downturn.
The second category consists of those who have embraced volatility and are finally excited about the arbitrage opportunity that comes from volatility and cheaper valuations.
And in the third group are those who can’t commit to which side they want to participate. Rationally they may be enticed by cheaper entry points, but emotionally remain unwilling to bear risk, which is a fair concern.
While there’s no crystal ball that can tell us when volatility will spike again, or if global growth will continue, perhaps we should return to the fundamentals of the advisor-driven consultative approach.
After a 10-year bull market in equities, how much risk are investors willing to accept? Knowing where and how we allocate capital becomes clearer when risk tolerance can be a guidepost.
These are the consultative considerations that allow advisors to build deeper relationships and demonstrate their value proposition.
It is important to remember that there are no universal “right” or “wrong” approaches, because every investor’s needs are unique. But depending on where you view risk at this point in the cycle, we’re confident that there’s a potential solution that will help achieve those goals.