Spikes in volatility have pushed most advisers’ clients into more diversified strategies, according to analysis.
The latest FTAdviser Advantage poll asked advisers what their clients had done to protect against rising volatility, with half saying their clients had ensured their portfolios were well diversified.
But 29 per cent - nearly one third - revealed their clients had done nothing at all in their investment portfolios as the Vix index, also known as the ‘fear’ index as it measures implied volatility, spiked in response to rising geopolitical tensions.
Martin Bamford, chartered financial planner at Informed Choice, agreed: “It’s no surprise to see diversification as the most popular option, as this remains the best way to tackle volatility and stay on track to achieve long-term investing goals.”
But he said: “It’s a bit worrying that a third of advised clients are doing nothing at all to protect against volatility.
“As advisers, we have an important role to play in helping our clients manage the investment journey, especially in respect of any damaging behaviours.
"Volatility will often prompt foolish decisions, such as selling assets at inappropriate times.”
The results of the poll also showed 21 per cent of advisers’ clients had invested in safe haven assets, such as gold, in light of a more volatile backdrop.
But Richard Turnill, BlackRock’s global chief investment strategist, said many investors may be holding too much cash and other safe-haven assets, as reflected in the results of its recent Global Investor Pulse survey.
He warned: “Sitting on the sidelines carries its own risks.”
Mr Bamford pointed out: “In the current economic environment there is no such thing as a ‘safe haven asset’, so 21 per cent of advised investors allocating to things like gold risks a major upset in the event of heightened volatility.”
Instead, he suggested an allocation to fixed income “could still play a useful role in reducing volatility”.
“Despite very low interest rates and massive amounts of quantitative easing, and the threat of rising interest rates, fixed income tends to be negatively correlated with equities. From a risk management perspective alone, it should not be discounted entirely,” Mr Bamford explained.
But the poll revealed no clients had piled into fixed income assets to protect against increased volatility.
Philip Hanley, independent financial adviser at Philip James Financial Services, said he tells clients to expect volatility.
“Part of the advice process is to make sure they have enough accessible cash to ensure that they can ride the ups and downs. Provided that is the case, they should remain invested based on the risk profile agreed.”
He added: “They've only 'lost' if they cash in when their investments have fallen; provided they don't have to, they can ride out any volatility.”
eleanor.duncan@ft.com
