Highlights

  • Financial professionals expect the stock market to post merely modest declines for the year, with continued recovery in the second half despite high levels of concern about volatility.
  • One in three financial professionals believes volatility shows investor anxiety was greater than the market thought; Market downturn exposed risks and limitations of passive funds.
  • Market outlook of respondents is more optimistic in the US than rest of the world. Pessimism is highest in Asia, where financial professionals forecast double-digit losses for the year.
London, June 15, 2020 – Financial professionals, including investment advisers, wealth managers, broker/dealers, and financial planners, expect US stock returns to climb back from steep losses to finish the year down just 3.6%, according to findings of a survey published today by Natixis Investment Managers. Despite seeing losses as high as -34% within the first few weeks of the crisis, financial professionals saw losses moderate to as little as -10% by the end of April.

The survey showed that 51% of financial professionals globally saw initial volatility caused by the coronavirus crisis as driven more by sentiment than by fundamentals. Optimistic the market will continue to right itself in the second half of the year, financial professionals’ main concern is the uncertainty of what happens next, including how investors handle it. Between March 16 and April 24, 2020, Natixis surveyed 2,700 financial professionals in 16 countries, including 300 financial professionals in the United Kingdom, 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 UK market, expectations are in line with the global average, 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.

INDEX GLOBAL FRANCE HONG KONG ITALY AUSTRALIA GERMANY UK US
MSCI World
-7.3%
-8.3%
-9.5%
-5.8%
-13.4%
-12.8%
-6.9%
-6.1%
S&P 500
-7.0%
-7.1%
-10%
-7.2%
-13.3%
-14.1%
-7.1%
-3.6%
CAC 40
 
-5.6%
 
 
 
 
 
 
Hang Seng
 
 
-11.5%
 
 
 
 
 
FTSE MIB
 
 
 
-13.5%
 
 
 
 
FTSE 100
 
 
 
 
 
 
-7.2%
 
ASX 200
 
 
 
 
-12.6%
 
 
 
DAX
 
 
 
 
 
-16.6%
 
 

Ongoing volatility remains the top risk to portfolio performance and market outlook. Two-thirds (69%) of professionals globally cite volatility as a top concern, followed closely by recession fears (67%). For respondents in the UK, volatility presents even more concern, with almost four fifths (78%) citing it as a top risk. Almost half (47%) of respondents globally say uncertainty surrounding geopolitical events pose a risk to their portfolios, even higher for the UK, at 60%. In a dramatic shift in risk concerns from previous years surveys, a fifth of respondents (19%) expressed concern about low yields, while liquidity issues were also cited by 17% of those surveyed.

With economies slowly reopening,financial advisors around the world are bullish on recovery,” said Darren Pilbeam, Managing Director, UK Retail & Wholesale Sales at Natixis Investment Managers. “But they are also focused on how to shield clients from the volatility they expect to come with it. The crisis has been a perfect storm for emotional investment decision-making, and with the downturn exposing the limitations of passive investing, the vast majority of advisors are looking to active management in the current environment.

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 (47%) agree that markets were overvalued at the time; eight in 10 (81%) believe the prolonged bull market had made investors generally complacent about risk. And as long as the markets are up, 49% of respondents say their clients resist portfolio rebalancing.

The survey found:

  • 67% of financial professionals think individual investors were unprepared for a market downturn (65% in the UK)
  • 75% suspect investors forgot that the longevity of the bull market was unprecedented, not the norm, historically (78 % in the UK)
  • 76% think individual investors, in general, struggle to understand their own risk tolerance, and the same number say clients don’t actually recognise risk until it’s been realized (68% in the UK)
“The market downturn – and expected recovery – serves as a lesson in behavioural 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 10 financial professionals (79%) believe the current environment is one that favours 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. Almost seven in 10 advisers globally agree investors have a false sense of security in passive investments (68%) and don’t understand of the risks of investing in them (72%). These figures are broadly reflected in the UK, where six in ten agree passive investments can give a false sense of security and 58% think investors don’t understand the associated risks.

Financial professionals are responding to new challenges managing client investments, expectations and behaviour. 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.

Methodology
Natixis Investment Managers 2020 Global Financial Professionals Survey was conducted by CoreData Research between March 16 and April 24, 2020. Survey included 2,700 financial professionals, including wirehouse advisors, registered investment advisors and independent brokers and dealers, with $134.6 billion in client assets, in 16 countries and territories in Asia, Continental Europe, Latin America, the United Kingdom and the Americas. In the US, CoreData surveyed 300 financial professionals with a total of $134.6 billion in assets and an average of 20 years’ industry experience. For more information, visit www.im.natixis.com/intl/research/2020-financial-professionals-survey-pandemic-market-investor-behavior

About the Natixis Investment Institute
The Natixis Investment Institute applies Active Thinking® to critical issues shaping the investment landscape. A global effort, the Institute combines expertise in the areas of investor sentiment, macroeconomics, and portfolio construction within Natixis Investment Managers, along with the unique perspectives of our affiliated investment managers and experts outside the greater Natixis organization. Our goal is to fuel a more substantive discussion of issues with a 360° view of markets and insightful analysis of investment trends.

About Natixis Investment Managers
Natixis Investment Managers serves financial professionals with more insightful ways to construct portfolios. Powered by the expertise of more than 20 specialized investment managers globally, we apply Active Thinking® to deliver proactive solutions that help clients pursue better outcomes in all markets. Natixis Investment Managers ranks among the world’s largest asset management firms3 with $908.9 billion / €828.4 billion assets under management4.

Headquartered in Paris and Boston, Natixis Investment Managers is a subsidiary of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Investment Managers’ affiliated investment management firms include AEW; Alliance Entreprendre; AlphaSimplex Group; DNCA Investments;5 Dorval Asset Management; Flexstone Partners; Gateway Investment Advisers; H2O Asset Management; Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seeyond; Seventure Partners; Thematics Asset Management; Vauban Infrastructure Partners; Vaughan Nelson Investment Management; Vega Investment Managers;6 and WCM Investment Management. Additionally, investment solutions are offered through Natixis Investment Managers Solutions, and Natixis Advisors offers other investment services through its AIA and MPA division. Not all offerings available in all jurisdictions. For additional information, please visit Natixis Investment Managers’ website at im.natixis.com | LinkedIn: linkedin.com/company/natixis-investment-managers.

Natixis Investment Managers’ distribution and service groups include Natixis Distribution, L.P., a limited purpose broker-dealer and the distributor of various US registered investment companies for which advisory services are provided by affiliated firms of Natixis Investment Managers, Natixis Investment Managers S.A. (Luxembourg), Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.
1 2018 concluded with a -4.38% decline for the S&P and -8.2% decline for the MSCI World

2 Source: Morningstar

3 Cerulli Quantitative Update: Global Markets 2019 ranked Natixis Investment Managers as the 17th largest asset manager in the world based on assets under management as of December 31, 2018.

4 Assets under management (“AUM”) as of March 31, 2020. AUM, as reported, may include notional assets, assets serviced, gross assets, assets of minority-owned affiliated entities and other types of non-regulatory AUM managed or serviced by firms affiliated with Natixis Investment Managers.

5 A brand of DNCA Finance.

6 A wholly-owned subsidiary of Natixis Wealth Management.

Provided by Natixis Investment Managers UK Limited which is authorised and regulated by the UK Financial Conduct Authority (register no. 190258). Registered Office: Natixis Investment Managers UK Limited, One Carter Lane, London, EC4V 5ER.