Sentiment survey picks its favourites

This article is part of
Spring Investment Monitor - March 2014

Advisers are increasingly turning to higher growth areas such as equities (growth), which has eclipsed equities (income) as advisers’ favoured asset class, and Europe ex UK, which experienced the greatest positive sentiment revision (up 15 points) of any region.

In the latest Celsius report – a bi-annual sentiment indicator produced by Financial Times Publishing – advisers indicate an increased risk appetite for equities; fixed income, as an asset class, experienced a minor 1 point decrease in confidence, but remained flat from the previous half-year.

The effect of the RDR appears to finally be coming through. Those products expected to benefit most from RDR – investment trusts, index trackers and ETFs – did indeed receive a warming in sentiment. ETFs and index trackers benefited the most, aided by rising markets, picking up 21 and 15 points respectively, to a Celsius reading of 23 and 22 points, vaulting them into the top five.

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Structured products had a more tepid rise, up 2 points, and even with a spike of 14 points from the first to second half of 2013, structured products remain advisers’ last choice of product at -49 on the index, just below gold, which remained flat at -40 points from the last half. Entering 2014, confidence deteriorated in multi-manager and multi-asset funds. The products sustained the largest confidence retractions of any product. Multi-manager funds shed 34 points in adviser sentiment, dropping out of the top five favoured products for the first time in the last four halves. Multi-asset funds fell 30 points, and dropped from second to third place in adviser favour, usurped by investment trusts which gained 4 points on the Celsius scale.

European Central Bank president Mario Draghi’s statement that he will do “whatever it takes” to keep the single currency area together has taken effect, and this half is dominated by Europe ex UK which has shot up 15 points on the Celsius scale, to a reading of 67 points.

Confidence in North America, on the other hand, has deteriorated. The region dropped 29 points, the sharpest contraction of any region. The region rallied more than any other in 2013, so advisers are understandably questioning the ability of companies in North America to continue to deliver the type of returns they did last year.

The divergence in performance between developed and emerging markets has left a bitter taste in advisers’ mouths for the emerging economies. Emerging markets have cooled since the latter half of last year, led by falls in confidence in Latin America (down 15 points) and Bric economies (down 2 points), though there was some thawing in sentiment toward China (up 9 points) and India (up 2 points).

Driven by roaring economic growth in countries like Nigeria, Middle East/North Africa spiked 15 points on the Celsius scale, bringing the region into neutral territory (0 points) for the first time in the last two years. It is too soon to tell whether this move will be an ongoing trend.

Markets are likely to see bumps in the road as the tide of equity markets resets itself, which will determine whether this half’s bullishness will become long term or if advisers’ will retreat into the cautious optimism of a year ago.