Advisers are upping their investments in ‘smoothed funds’ amid concerns that volatility will threaten returns over the next year, according to research from Wesleyan.
The research found that 63% of advisers believe volatility will threaten their clients’ investment performance in the next 12 months, with 21% labelling the threat as ‘significant’.
When asked what factors they expected to be the most significant contributors to market volatility, advisers flagged uncertainty over the Bank of England’s interest rate decisions as the most popular factor, highlighted by 36% of respondents.
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This was followed by uncertainty over the rate of inflation, flagged by 27%, and the prospect of elections on both sides of the Atlantic (24%).
Meanwhile, half of respondents also expect the majority of their clients at or near retirement to postpone or change their retirement plans as a result of the impact of volatility.
To mitigate volatility, the survey found 22% of advisers have increased their investments in ‘smoothed’ funds, while a fifth of respondents were decreasing their exposure to equities (20%) and cash (19%).
Smoothed funds aim to shelter investors from some of the adverse effects of market movements.
“Volatility has been a defining characteristic of markets over the last few years and the results of our research show that advisers believe this will not change any time soon,” said Nick Henshaw, head of intermediary distribution at Wesleyan.
“Economic and political turbulence could affect client outcomes in the next year and advisers will have to carefully consider the interplay between their clients’ individual risk appetites and capacities for loss when developing a strategy that offsets volatility and continues to support their long-term goals.
“Advisers are turning to specialist funds to help their clients mitigate market volatility and maintain effective risk, balanced portfolios.”
